The ability of minimum-volatility indices to protect portfolios against major pullbacks and deliver stable returns has gained relevance once again amid this year’s market downturn.
The STOXX® Global 1800 Minimum Variance index, for example, advanced 5.9% in 2025 through April[1], compared with a 0.2% drop for the benchmark STOXX® Global 1800. The Minimum Variance index accomplished the outperformance by targeting stocks within the same universe as the benchmark — and keeping a similar profile in terms of factor, country and sector exposures — while reducing the overall volatility of the portfolio.
The STOXX Minimum Variance indices come in two versions. A constrained version has similar exposures to its market-capitalization-weighted benchmark but with lower risk[2]. The indices capture the possibilities in portfolio construction around a risk objective, with multiple constraints — including turnover and liquidity — to ensure diversification and tradability. The unconstrained version, meanwhile, has more freedom to fulfill its low-volatility mandate.
A new STOXX whitepaper examines the key characteristics and performance of the indices to reveal how minimum-variance portfolios reduce the annualized volatility and drawdowns during market sell-offs. Moreover, they deliver markedly lower portfolio risk (as expected) and competitive returns over the long term, resulting in significantly higher Sharpe ratios.
Figure 1: Performance of STOXX Global 1800 Minimum Variance indices vs. benchmark
This long-term outperformance follows the premise of “winning more by losing less.” Minimum-volatility strategies tend to outperform during periods of market turmoil, as is illustrated in Figure 2, the authors write. Such instances include the 2008 global financial crisis, the 2010–2011 European debt crisis, the 2018 market downturn driven by inflation fears and rising interest rates, the 2022 bear market triggered by rate hikes and the 2025 volatility spike following the announcement of US import tariffs.
By cushioning losses when markets experience heightened uncertainty, Minimum Variance indices can build on higher base levels when markets recover.
Interestingly, minimum-variance strategies also outperformed in positive years such as 2004, 2006, 2010 and 2014.
Figure 2: Annual performance
A similar pattern is observed when analyzing different regions, the study shows.
“The ability of minimum-volatility indices to protect against major drawdowns and deliver stable returns underscores their importance in a well-diversified investment strategy,” authors Ioannis Kapolas and Kartik Sivaramakrishnan of STOXX’s Product Development team write. “As uncertainty remains a key theme in financial markets, minimum-volatility investing continues to be an essential approach for risk-conscious investors.”
A rough rule of thumb, they add, is that over a 10-year period or longer, the minimum-volatility portfolio delivers the return of the parent benchmark with two-thirds its volatility and 1.5 times its Sharpe ratio.
Besides higher Sharpe ratios and lower portfolio risk, minimum-variance indices also stand out for their emphasis on low-beta stocks, consideration of intra-asset correlations, improved risk premia and enhanced diversification, Ioannis and Kartik write.
Further analysis
The authors then compare the unconstrained and constrained Minimum Variance strategies. The unconstrained portfolio is well suited for volatility reduction, but the resulting portfolio can underperform the benchmark sharply in bull markets, they write. The constrained Minimum Variance portfolio reduces the benchmark volatility while also tracking it closely in rising markets.
The study is completed by an analysis of performance attribution, including active and specific contribution, and factor and style drivers, which is likely to be of interest to portfolio managers.
This year’s wobbly markets have served as a reminder that minimum-volatility strategies can play a role in portfolios as powerful defensive tools. We invite you to download the whitepaper and explore its entire findings.
[1] Gross returns in USD.
[2] The objective is to minimize the portfolio’s ex-ante risk as provided by Axioma’s regional factor model.