Hulbert: Low-Volatility Stocks Outperform Their Volatile Brethren

Wednesday, 12 Jun 2013 08:08 AM

By Dan Weil

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You might think of volatility as part and parcel of an ascending stock, but that's not the case, says Mark Hulbert, editor of Hulbert Financial Digest.

"In the stock market, boring is often beautiful," he writes in The Wall Street Journal

"That is because 'boring' stocks — those that have exhibited the least historical volatility — on average outperform the most 'exciting' issues — those that have been the most volatile. And not by just a small margin, either."

Editor's Note:
 
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Research conducted by Nardin Baker, who manages global equity at Guggenheim Partners, confirms Hulbert's point.

Baker compared the performance of the 10 percent of U.S. stocks that had the lowest historical volatility with the performance of the most volatile 10 percent between 1990 and 2012.

The least volatile stocks did 19 percent better, and Baker found almost identical data for 32 developed and emerging stock markets abroad, Hulbert reports.

"The clear investment implication is to load up your portfolio with boring stocks and shun the most volatile ones," Hulbert writes.

Current low-volatility stocks include Southern Co., Dominion Resources, Kimberly-Clark, Colgate-Palmolive and Costco, according to Baker.

High-volatility shares include Apple, Goldman Sachs, Citigroup, Hewlett-Packard and MetLife.

To find a top low-volatility stock, YCharts started with the 100 companies in the PowerShares S&P 500 Low Volatility exchange-traded fund. It then screened for profit and valuation.

"Exxon Mobil rises to the top of the screen with 31 percent EBITDA [earnings before interest, taxes, depreciation and amortization] growth over the past three years, yet a forward PE [price-earnings] ratio of 11.6 that remains well below its 10-year cyclically adjusted PE of 14.2," writes YCharts senior contributing editor Carla Fried.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

© 2014 Moneynews. All rights reserved.

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