Low Vol vs Steady Vol Strategies

Dan Davies likened the Steady Vol strategy to a minimum volatility strategy, which came as a surprise, as perhaps even more surprising - it never occurred to me beforehand!

For those not in the know, Steady Vol tries to keep volatility stable by inversely weighting the index over time by implied volatility.

Minimum volatility indicies inversely weight the constituents of an index by their historical volatility and removes the highest volatility stocks.

Research has shown that it earns a healthy premium. Probably for the same reason that bonds earn a risk adjusted premium over the long term.

Low volatility stocks often have a higher yield and little upside, but just like bonds they have a vertiginous downside.

You earn a premium for holding wickedly skewed stocks.

There are worse ways to earn money!

Steady Vol is a timing strategy and my faltering attempt to find a way to tame yearly Sharpe ratios and provide more consistent performance.

As Dan points out though, using implied volatility instead of historical for a minimum volatility index might be worth looking into.