During the turbulent start to the year, there were few places where investors could take refuge from the daily volatility, and as a result, the so-called “low vol” stocks and strategies emerged as one of the preferred hangouts until the transitory turbulence ended. However, even with a return to more normal market levitation, many investors have so far failed to exit the safety of the “low vol” cave, in many cases conveniently padded by dividend payments for stocks that did not promise much upside, excitement or beta, but certainly offered stability.
But, as BofA’s Savita Subramanian warns, “Low Vol” may be the next shoe to drop.
As BofA’s strategist notes, low volatility strategies have seen a parabolic increase in inflows since late 2014 as investors have chased the perceived safety of these strategies. These inflows helped push valuations in Staples and Utilities to elevated levels.
This post was published at Zero Hedge on Oct 11, 2016.
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