Low beta assets are considered attractive to investors primarily because they tend to outperform the market during periods of market downturns or crashes. The beta of an asset is a measure of its sensitivity to market movements. A low beta indicates that the asset is less volatile than the market, meaning it tends to fluctuate less in price. This characteristic makes low beta assets a safer investment during periods of market instability. When the market is crashing, investors often seek refuge in low beta assets as they are less likely to experience severe price drops. Furthermore, low beta assets have a tendency to outperform high beta assets during these periods, providing investors with a degree of protection against potential losses.

Choice B is incorrect. Low beta assets do not attract higher risk premiums. In fact, the opposite is true. High beta assets are considered riskier and therefore attract higher risk premiums as compensation for the increased level of risk.

Choice C is incorrect. Low beta portfolios do not deliver higher volatility than expected; they are typically associated with lower volatility. The statement that low-beta portfolios have shown significantly better results in practice is also misleading, as their performance depends on various factors and cannot be generalized.

Choice D is incorrect. As explained above, low beta assets can provide a degree of protection against market downturns, making them an attractive investment option for certain investors.

Things to Remember

• Beta measures the sensitivity of an asset's returns to market returns.
• Low beta assets are less volatile and provide a degree of protection during market downturns.
• Investors often use low beta assets as a hedge against market risk.
• High beta assets are riskier and tend to attract higher risk premiums.
• Low beta assets may not always outperform high beta assets in all market conditions.