News From The Retirement Symposium: Nick Murray Scolds Those Hawking Low-Volatility Funds

mptpro I assume MPT means Modern Portfolio Theory. Unfortunately, you and many other advisors believe that MPT means buy and hold and never adjust. Even Markowitz does not say this is so. And yes, you and many other advisors crow about how "only the clients who sell, lose." Yay, you and your clients finally got back to break even - in - what - 2013? 5 years later? Good for you. Big success there - to have robbed your clients of 5 years of their financial lives waiting for their portfolio to get back to break even - IF they ever did. If they were retired and taking withdrawals then you and I both know that they are NOT back to break even and likely won't ever be. My book is filled with clients who escaped advisors like you - doing nothing but telling them to "hold what you have" and "it will come back... someday... just in time for the NEXT recession." Of course - that strategy prevents you from having to learn anything new - or provide any new relevant information or actions for you client - all the while collecting a fee for doing nothing.

"Advisors who followed that advice lost many clients and much money during the recession." Really? Not mine. I've seen quite a few recessions during my 25 of managing and clients and other Advisors. Only the client who sell, lose. Those that buy-and-hold, as Nick sugessts, don't. Investing is really, really easy, it's just that the investor (and often the Advisor) gets in the wat.

Significant research - mostly by Standard and Poors - indicates that the low volatility indices actually outperform the standard indices in many cases - but only over the long term. The algorithmic rotation into the stocks that have displayed less recent volatility than their peers can actually reduce the standard deviation of the equity asset class by 20-30% on a year-by-year basis. Sometimes the indices underperform, but often they do not (such as last year). The low-vol mid-cap index seems to struggle the most, but the large cap and small cap indices hold their own just fine. Additionally - if you can reduce the porfolio's volatility without as much fixed income - you actually can have a portfolio with MORE equity exposure - and which still pegs out at the same risk as a portfolio with a preconceived amount of fixed income. For example - a Low Volatility 60/40 portfolio can actually have about 71% equities in it and 29% fixed income and still have the same standard deviation as a 60/40 portfolio - but significantly higher return potential - especially in an environment where fixed income is not expected to outperform (such as while interest rates are rising). Murray also believes that you just "hold" your equities during recessions. Advisors who followed that advice lost many clients and much money during the recession. While I personally have a lot of respect for Murray, and he is very wise - he is quite "old school" and occasionally should pay a bit more attention to recent research. After all - the medical industry has progressed - why can't we?

Murray has it wrong. There are studies showing that low-vol stocks outperform high-vol stocks. If you're buying low-vol funds for that reason it may be a good move. If you're buying them because you think they won't go down or will go down far less in bear markets you're a moron.