Investment Insights
February 16 2022

2021 Brought Back Attractive Returns to Low Volatility Investors

10 min read

Quantitative Equities Team

After a difficult 2020, 2021 was encouraging for low volatility investors.

The low volatility strategies at TD Asset Management Inc. (TDAM) saw a return to attractive risk-adjusted performance, outperforming expectations in a strong equity year. The firm's low vol strategies responded positively to inflation scares and COVID-19 waves.

This supports expectations that last year's strong risk-adjusted performance can continue well into the future despite the global equity risks on the horizon. This is according to the newly published TDAM Low Volatility Investing: Year in Review and Look Ahead article.

Many of the positions which low vol strategies at TDAM held in 2020 are the ones which provided excellent risk-adjusted returns in 2021. These include positions in companies like utilities, grocery stores and pharmaceuticals, which continue to play a key role in protecting against most negative market scenarios.

Technology as a false harbour

The low vol strategies at TDAM continued to treat tech firms as high-risk throughout 2021, keeping investment in that sector modest. The article says empirical evidence does not support mainstream media's clear-skies narrative.

It cautions against treating the sector as a new safe harbor despite the recent market successes of tech firms. It argues that the current market concentration in technology poses a risk for the foreseeable future.

Looking ahead: unanswered questions and climate change risk

Even though last year saw a return to solid risk-adjusted performance, risks and unanswered questions are looming over equity markets.

Many of last year's global issues remain unresolved and excessively high market concentration persists. Which companies and industries will emerge as the winners and losers of the pandemic? This is still an open question, the article argues.

But no economic risk rivals that of global warming. The concerns are real as investors attempt to price in the future impact of changing weather patterns and extreme weather events as well as changing regulations, such as increases in carbon pricing.

For more details, read the full article.

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