Minimum Variance Due Diligence

Modern Portfolio Theory stipulate that higher risk, typically defined as volatility, should be associated with higher expected return.

Research on the other hand, has repeatedly found that strategies like Minimum Variance, Low Volatility or Equal Risk Contribution Strategies tend to deliver better Risk-Adjusted return than their Market Cap weighted Benchmark.

I thought it would be of value to compile a list of such Strategies delivered through a ETP vehicle. Below I have listed all Minimum Variance ETPs and their underlying indices. The list is dynamic and will be updated automatically, later Will follow the list of ETPs constructed by selecting low-Volatility constituents, instead of optimization like Minimum Variance, and Equal-Risk Contribution based ETPs.

Minimum Variance

As im constantly trying to refine the level of due diligence within the different product segments, I have gone through the various index construction methodologies, to see how they differ.

Currently this include Minimum Variance Specific Dimensions like:

  • Short Selling Constraint
  • Turnover Constraints
  • Volatility Horizon used to shrink the covariance matrix

I also screen for more General Smart Beta Dimension such as:

  • Tracking Error Constraints
  • Turnover Constraints
  • Country Deviation Constraints vis-à-vis Benchmark
  • Sector Deviation Constraints vis-à-vis Benchmark
  • Factor Deviation Constraints vis-à-vis Benchmark

If any of our Users has any insight on further Dimensions, I should record data on, please let me know.

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