Low Volatility Takes a Bite out of FAANG

August 29, 2019 | Robert Britenbach, CFA, CIPM, Research Analyst, U.S. Equities

Low Volatility Takes a Bite out of FAANG line vhart

FAANG stocks have underperformed the broad market over the past year, a stark change from their previous multi-year run of outperformance. More recently, this high-flying group has been negatively affected by a slowing global economy, the U.S.-China trade war, and antitrust investigations. On the other hand, low volatility equity strategies — heavily allocated to defensive sectors of the market such as utilities, REITs, and consumer staples — are benefiting from concern that we are late cycle, slowing global economic conditions, and falling interest rates. As investors seek to mitigate downside risk within equities, low volatility investments have been the recent winner.

This week’s Chart of the Week shows the growth of $100 for the S&P 500 Low Volatility index, the S&P 500 index, and the NYSE FANG+ index over the past year. As of August 23rd, the S&P 500 Low Volatility index had a trailing one-year return of +15.3%. Over this same time frame, the S&P 500 index returned a meager +1.7% while the NYSE FANG+ index fell by -12.4%.

The basic premise of low volatility investing is winning by not losing. A focus on lower beta, lower volatility stocks provides downside protection and helps with the power of compounding over time. The low volatility trade isn’t entirely a free lunch since popularity in this investment style has driven up valuations. Across defensive sectors, valuations are well above their long-term historical averages and trade at a premium to the broad market. As of July month-end, the S&P 500 Low Volatility index had a trailing P/E ratio of 23x compared to 21x for the S&P 500 index. While valuation levels for low volatility indices are certainly elevated and may have an impact on future price appreciation, their lower beta nature should act to mitigate downside risk relative to the broad market.

Print PDF > Low Volatility Takes a Bite out of FAANG

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Robert Britenbach, CFA, CIPM
Research Analyst, U.S. Equities

Get to Know Rob

Related Content


The Rise of Co-Investing

Much like the overall private equity ecosystem, the private equity co-investment landscape is undeniably growing and has yet to show…


Attack on Saudi Oil and Market Implications

Over the weekend, half of Saudi Arabia’s oil production stopped due to a drone attack on the country’s major Saudi…


The Infamous September

When it comes to timing the stock market, one oft-heard saying is “Sell in May and go away,” which “warns”…


Catastrophe Bonds

Institutional investors are constantly searching for additional asset classes that may help diversify a portfolio and enhance returns. Catastrophe (“cat”)…


Plummeting Pound Rebounds as PM Johnson is Thwarted

There has been a flurry of updates on the Brexit saga over the last three weeks, starting with the leak…


Investing 101 Video Series

Our Investing 101 video series covers the fundamentals of investing. This series aims to create a knowledge base for trustees,…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >