Explanation:
Due to the low volatility anomaly, low volatility investment strategies often generate higher risk-adjusted returns than higher volatility portfolios. When compared against conventional capitalization-weighted market indices (which are not specifically risk-adjusted), these low-volatility portfolios historically demonstrate significant positive alphas.
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Q.51 During a training session for novice portfolio analysts, a seasoned portfolio manager from a pension fund delves into the subject of low volatility investment strategies. The manager uses past performance data from companies employing these strategies and explains the benchmarks applied. Which of the following assertions about low volatility strategies would be accurate for the manager to put forward during this session?
A
These strategies typically demonstrate significant alphas when compared to conventional market capitalization benchmarks.
B
When evaluated against dynamic factors such as value or momentum, these strategies usually yield negative alphas.
C
Over the risk-free rate, these strategies tend to yield high alphas, but when compared to any other benchmark, the alphas are insignificant.
D
These strategies usually generate low alphas if the benchmark is risk-adjusted and high alphas otherwise.