Are low-volatility returns too good to be true?
An investor will have to determine whether the underlying strategy is really low risk
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STARTING in 1990, an exclusive investment fund produced an enviable track record. Over the next 18 years, it would return 11 per cent per annum (p.a.) Even better, during this long track record, its worst performing month was -0.64 per cent. On average the fund had one negative month per year.
In many investors' eyes, this was the perfect fund: equity-like performance with near-zero volatility. Why suffer the violent gyrations of the equity market when you could gain almost 1 per cent per month regularly?
To some, this looked like something that should not exist in the investment world: a free lunch. A small number of people questioned the returns, but the allure of low volatility double digit returns was just too great.
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