In this article I wrote about a “slow and steady” approach to investing that included usage of the S&P 500 Low Volatility Index. Reader DB inquired about what the results would look like if we used the S&P 500 Index itself rather than the Low Volatility index.
The Results
During the test period of 12/31/1990 through 8/31/2019, the Low Volatility version, i.e., the one presented here, performed better than a version that uses the S&P 500 Index. For the record, both versions handily outperformed buy-and-hold.
Figure 1 displays the cumulative growth of $1,000 in:
*Blue line: S&P 500 Low Volatility (held Mar,Apr,May,Nov,Dec) version
*Orange line: S&P 500 Index (held Mar,Apr,May,Nov,Dec) version
*Grey line: S&P 500 Index Buy-and-Hold
Figure 1 – Growth of $1,000 in various strategies
Figure 2 displays the comparative facts and figures
| Measure | LoVol Version | SPX Version | SPX Buy/Hold |
| Average 12-mos % +(-) | +13.7% | +13.1% | +11.1% |
| Median 12-mos. % +(-) | +12.8% | +11.8% | +13.2% |
| Std. Deviation 12-mos. % +(-) | 8.6% | 8.7% | 16.2% |
| Average/Std. Deviation | 1.6 | 1.5 | 0.7 |
| Worst 12-month % | (-3.3%) | (-7.6%) | (-43.3%) |
| Maximum Dradown % | (-7.4%) | (-9.0%) | (-50.9%) |
| Average 5-Yr. % +(-) | +94.0% | +87.9% | 69.8% |
| Worst 5-Yr. % +(-) | +38.5% | +32.2% | (-29.1%) |
| $1,000 becomes | $37,369 | $31,572 | $16,044 |
Figure 2 – Comparative Results
With the eternal (and technically very appropriate) caveat that “past performance does not guarantee future results”, using the S&P 500 Low Volatility Index in my Slow and Steady system appears to add value beyond the Slow and Steady version that uses the S&P 500 Index, and particularly against a buy-and-hold approach.
As always, this is not a “recommendation” – simply a report of hypothetical back-tested results.
Jay Kaeppel
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
