Last week, we also saw the same thing happen to USMV. Unlike the large-cap-focused SPLV, USMV selects its low-volatility holdings from a U.S. total-market universe. As a result, we ran USMV against the MSCI USA Investable Markets Index.
Like SPLV, USMV maintained a statistically significant 12-month alpha ranging between 4 and 9 percent. This indicated the fund’s passive low-volatility strategy significantly outperformed the broader U.S. market.
However, in the past month, it too faced a significant pullback when compared against our segment benchmark.
So what exactly is driving the force behind the reversals in “alpha” that we’re beginning to see in the low-vol space?
Looking at SPLV gives some greater insight.