RT Journal Article SR Electronic T1 Low-Volatility Investing: Balancing Total
Risk and Active Risk Considerations JF The Journal of Portfolio Management FD Institutional Investor Journals SP 49 OP 60 DO 10.3905/jpm.2013.40.1.049 VO 40 IS 1 A1 Khalid (Kal) Ghayur A1 Ronan Heaney A1 Stephen Platt YR 2013 UL https://pm-research.com/content/40/1/49.abstract AB Low-volatility strategies have been shown to offer significant total risk and drawdown reduction without sacrificing returns, compared to the market. However, low-risk strategies also involve an inherent trade-off between total risk and active risk (or tracking error). Existing passive alternatives for capturing low-risk strategies emphasize total risk reduction at the expense of high and uncontrolled active risk. The article discusses a new approach for capturing abnormal risk-related payoffs at targeted active-risk levels, using a transparent, rules-based approach. This proposed approach lets investors strike a better trade-off between total risk and active risk, and implement low-volatility investing within the constraints of their active-risk budgets.TOPICS: Portfolio theory, volatility measures, passive strategies