I am researching whether low beta investing has benefited from recent conditions, such as the interest rate bear market since 1982 which could favor higher yielding equities such as utilities found in low beta screens (especially in today’s low yield environment).
I found this Cliff Asness paper showing that low beta outperformance is NOT an industry bet:
We show that a betting against beta (BAB) strategy has delivered positive returns both as an industry-neutral bet within each industry and as a pure bet across industries. In fact, the industry-neutral BAB strategy has performed stronger than the BAB strategy that only bets across industries and it has delivered positive returns in each of 49 U.S. industries and in 61 of 70 global industries.
This draws me towards USMV over SPLV due to greater diversification across industries:
Next, I overlaid a 40 year history of a low beta portfolio with RecessionAlert‘s robust recession model.
Chart D, page 3
It can be seen that high beta stocks decline rapidly during recessions. Low beta stocks fare much better but there may be some value in holding cash during recessions.
The next post describes how an enormous fortune was built using a low beta strategy combined with leverage.