Low Volatility Stocks: The Steady Performers in Turbulent Times

• Low volatility stocks offer potential long-term outperformance by minimizing losses during market downturns.
• These stocks are typically established leaders in defensive sectors like healthcare, energy, and essential services.
• Adding low volatility stocks can anchor a portfolio, improving diversification and risk-adjusted returns.
• Key risks include potential underperformance during bull markets and sensitivity to changing interest rates.

The Quiet Charm of Boring Stocks in a Noisy Market

Let’s be honest, shall we. The investment world has become a bit of a circus. Every day there’s a new high-flying tech darling promising to change the world, or a cryptocurrency that’s apparently on its way to the moon. It’s all very exciting, very loud, and, if you ask me, utterly exhausting. Chasing these shooting stars feels less like investing and more like a frantic game of musical chairs. I, for one, prefer a strategy that doesn’t give me a nervous twitch every time I check my portfolio.

This is where I find a strange comfort in the deliberately dull, the wonderfully predictable, the titans of tedium. I’m talking about low volatility stocks.

The Great Contradiction of Investing

Here’s a funny little secret that the market gurus don’t shout about. Over the long haul, the slow and steady stocks often end up outperforming their more dramatic, volatile cousins. It seems to fly in the face of that old mantra, ‘higher risk, higher reward’. But when you stop and think about it, it makes perfect sense.

The maths is brutally simple. If a stock plummets by 50 percent, it doesn’t need to rise by 50 percent to get back to where it started. It needs to double, a full 100 percent gain, just to break even. The companies that avoid those terrifying nosedives don’t need heroic comebacks. They just keep plodding along, compounding their value without all the drama. It’s the tortoise and the hare, but with balance sheets.

Meet the Usual, Unexciting Suspects

So, who are these paragons of predictability? You know them well. They are the companies that form the very bedrock of our daily lives. Think of Johnson & Johnson, a company that has been paying dividends for more than half a century. Or Exxon Mobil, a behemoth that keeps the world’s lights on regardless of the latest economic fad. Then there’s UnitedHealth Group, which profits from the simple, unavoidable facts of life and an aging population.

These aren’t the companies you brag about at a dinner party. Nobody ever got a thrill telling their friends they’ve just bought into a stable healthcare provider. But their strength lies in their very dullness. People need medicine, they need fuel, and they need insurance, whether the economy is soaring or sinking. This creates a foundation of demand that is wonderfully, reassuringly stable.

A Sturdy Umbrella for a Rainy Day

The real magic of these stocks, to me, is how they behave when the sky starts falling. During a market panic, when everyone else is running for the exits, these companies tend to hold their ground far better than the market darlings. They act as a sort of anchor for your portfolio.

While this defensive quality is a godsend in a downturn, it does come with a trade-off. During a raging bull market, these steady eddies will almost certainly lag behind the more aggressive growth stocks. You have to accept that you might miss out on some of the frothiest gains. It’s a choice between potentially spectacular returns and the ability to sleep at night. For those looking for a starting point, a collection like the Low Volatility Stocks groups these sorts of companies together, offering a diversified look at this corner of the market. But remember, no investment is without risk. These stocks could be affected by things like rising interest rates, which can make their reliable dividends look less appealing compared to safer government bonds.

Deep Dive

Market & Opportunity

• Stocks with lower volatility have historically outperformed their more volatile counterparts over extended periods, a phenomenon known as the "low volatility anomaly".
• Low volatility stocks often experience smaller declines than the broader market during downturns, providing a defensive advantage.
• The inclusion of low volatility stocks aligns with modern portfolio theory, serving as portfolio anchors to potentially achieve better risk-adjusted returns.
• Many low volatility stocks are also dividend payers, which can provide income, protection against inflation, and contribute to long-term returns through reinvestment.

Key Companies

• Johnson & Johnson (JNJ): A diversified healthcare company with revenue from pharmaceuticals, medical devices, and consumer products. It has a history of consistent dividend payments for over 60 years.
• Exxon Mobil Corp. (XOM): An integrated energy company with global operations, refining capabilities, and strong balance sheets that provide multiple revenue sources to smooth out performance.
• UnitedHealth Group Incorporated (UNH): A company in the healthcare services sector providing insurance and healthcare services, benefiting from predictable, recurring revenue streams.

Primary Risk Factors

• Changes in interest rates can negatively impact valuations, as rising rates may make dividend stocks less attractive relative to bonds.
• Sector concentration is a risk, as many low volatility stocks are clustered in industries like utilities, consumer staples, and healthcare.
• There is an opportunity cost of potentially underperforming more aggressive growth stocks during strong bull markets.

Growth Catalysts

• Ongoing market uncertainty from geopolitical tensions and inflation increases the value of stability offered by these companies.
• Demographic trends, such as an aging global population, may increase demand for stable, dividend-paying stocks.
• The defensive nature of these stocks limits losses during market downturns, which is mathematically advantageous for long-term wealth building.

Investment Access

• The Low Volatility Stocks collection is available on the Nemo platform.
• The platform is regulated by the ADGM.
• Investing is offered commission-free.
• Access is available through fractional shares starting from $1.