The ability of minimum volatility indices to protect portfolios against major pullbacks and deliver stable returns gains relevance during market downturns.
The STOXX Minimum Variance indices come in two versions. A constrained version has similar exposure to its market-capitalization-weighted benchmark but with lower risk. The unconstrained version, meanwhile, has more freedom to fulfill its low-volatility mandate. The indices capture the possibilities in portfolio construction around a risk objective, with multiple constraints to ensure diversification and tradability.
This whitepaper examines how minimum-variance portfolios reduce the annualized volatility and drawdowns during market sell-offs. Moreover, they deliver markedly lower portfolio risk and competitive returns over the long term, resulting in significantly higher Sharpe ratios.
