How It Works
This model picks the 20 least volatile stocks from the Nifty 750 universe. We’re looking for the boring, steady companies that don’t jump around every day. I rebalance this portfolio on a quarterly basis i.e. at the at the end of February, May, August, and November. No weekly drama here – slow and steady adjustments are made.
By its very nature, most of the money ends up in large caps. These are the big, established companies that have seen it all and don’t get too excited about daily market noise. Think of it as the been there done that “grandfather portfolio” – wise, stable, and not easily rattled. No excitement of unheard of names showing up in your portfolio.
The Science behind the Stability
As always, I didn’t invent this idea. The low risk/ low volatility factor has been established to deliver alpha. Not just globally, but in India as well. There is a fair bit of evidence to it.
If you are the academic types do read the paper titled – Low-Risk Anomaly: Evidence from India by Rajan Raju. But the comfort of low volatility does come at a price – this isn’t going to give you those exciting 25-30% annual returns that momentum strategies can deliver. We’re trading excitement for stability here.
Interestingly, even though we’re picking “safe” stocks, the maximum drawdown isn’t that different from that of broader indexes. That’s just the nature of equity markets – when everything falls, even the boring stocks fall too.
The 15-18% annual returns over a decade are solid, especially when you consider the lower day-to-day stress this portfolio brings to your life.
Who Should Consider This?
If you’re someone who wants decent equity returns but can’t handle the daily roller coaster of momentum investing, this could be perfect. It’s also a great diversifier if you’re already running momentum strategies.
Actually, the usual approach to diversification is not to go all-in on either approach ie Low Volatility vs. Momentum. A 75-25 or 60-40 split should work better. The low-vol portion will smooth out your overall returns and give you something that performs differently during various market conditions.
Conclusion
This strategy is effective if you want steady equity exposure without the daily heart attacks (okay I am kidding here, I mean the heart attack bit). The quarterly rebalancing means less work for you, and the focus on stable large caps means fewer surprises.
It’s slightly non-correlated to momentum portfolios, which makes it a fantastic diversifier. When momentum stocks are getting crushed because they’ve fallen out of favor, your boring low-volatility stocks might just keep chugging along.
The 15-18% returns won’t make you rich overnight, but they’ll help you sleep better at night. And sometimes, that peace of mind is worth more than chasing those extra few percentage points.
How to invest?
Click on “View smallcase” button and follow through.
Investments in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BSE and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
Reach out to us at info@sandeeprao.co for any clarifications.
