Investors who are uneasy with increased stock market volatility might consider stocks with a track record of steady month-to-month performance. In fact, the so-called low volatility anomaly is the finding that low volatility stocks often generate higher returns over the long run than stocks with wider price swings, academic research finds.  Writing in his Barron's column, Mark Hulbert, developer of the Hulbert rating system for financial newsletters, cites this research and recommends 10 low-volatility stocks: Aflac Inc. (AFL), Amdocs Ltd. (DOX), BCE Inc. (BCE), Berkshire Hathaway Inc. Class B (BRK.B), Coca-Cola Co. (KO), Honeywell International Inc. (HON), Loews Corp. (L), PepsiCo Inc. (PEP), Republic Services Inc. (RSG) and Procter & Gamble Co. (PG).

The comprehensive study cited above looked at 33 stock markets around the globe from 1990 through 2011. The authors note that similar results were presented in earlier papers covering the periods 1926–1970 and 1970–1990. With the Investopedia Anxiety Index (IAI) recording extremely high levels of nervousness about the securities markets among our millions of readers across the globe, largely due to the return of volatility, these observations come at an opportune time. The CBOE Volatility Index (VIX) closed February 26 at 15.85, down 68% from its midday high of 50.30 on February 6. (For more, see also: 4 Top Low Volatility Stocks for 2018.)

Performance Data

Here are the price moves of these stocks from the close on March 9, 2009 through close on February 26, and during the recent correction between the closes on January 26 and February 8. The close on March 9, 2009 is generally recognized as the end of the previous bear market. These calculations are based on adjusted closing price data from Yahoo Finance:

  • Aflac Inc. (AFL), +892%, -8.5%
  • Amdocs Ltd. (DOX), +355%, -8.5%
  • BCE Inc. (BCE), +306%, -5.7%
  • Berkshire Hathaway Inc. Class B (BRK.B), +356%, -11.9%
  • Coca-Cola Co. (KO), +234%, -11.2%
  • Honeywell International Inc. (HON), +740%, -11.5%
  • Loews Corp. (L), +197%, -13.9%
  • PepsiCo Inc. (PEP), +213%, -9.5%
  • Republic Services Inc. (RSG), +435%,  -9.5%
  • Procter & Gamble Co. (PG), +145%,  -8.6%

The S&P 500 Index (SPX) has gained 311% since the start of the current bull market and fell by 10.2% during the recent correction. Above are the 10 lowest volatility stocks that also are recommended by at least one of the top-performing investment advisors as rated by the Hulbert Financial Digest. For volatility, Hulbert relied on a website created by the late finance professor Robert Haugen, co-author of the papers cited above, which presents a list of stocks whose prices had the lowest monthly standard deviations during the preceding 24 months. (For more, see also: Low Volatility May Spur Market Crash: Filia.)

Study Findings

Based on data since May 31, 1988, the MSCI USA Minimum Volatility Index has outperformed the S&P 500 by an average of 30 basis points per year, including reinvested dividends, according to analysis from Ned Davis Research presented by Hulbert. In bull markets, the low-volatility index trailed by an average of 3.0 percentage points per year, but in bear markets it outperformed by a robust 10.39 percentage points per year on average.

In periods of low volatility overall, low-volatility stocks do somewhat worse. Over the course of the current bull market, the MSCI USA Minimum Volatility Index has underperformed the S&P 500 by a full percentage point per year on average. In 2017, the deficit grew to 2.6 percentage points, Hulbert adds.

Liquidity Penalty

In the short term, as during the recent correction, low-volatility stocks actually may suffer the greatest price declines, Hulbert notes. Nardin Baker, chief strategist at South Street Investment Advisors in Boston, collaborated with Haugen on studies of low-volatility stocks. He told Hulbert that low-volatility stocks also tend to be the most liquid stocks, and thus they often attract undue selling pressure from institutions that need to raise cash in a downturn. However, he adds, they tend to rebound within a few months.