Saturday, April 14, 2018

Fresh Details On Low Volatility Investments

By Lisa Robinson


It is easy to assume that all investors are good at taking risks. Low Volatility Investments have taught the world that some of the investors are not in it for the adrenaline that comes with risks. They will invest in stocks making little gains as long as their risk is minimized. However, the debate is whether these investments offer the promised returns and whether they are worth it.

All investors want to reduce their risks to bare minimum. This has worked in situations of market crash. Stocks fluctuate significantly between extreme highs and extreme lows. Investors identify stocks that are shielded from such fluctuation. They put their money on such stocks because there is little chance of losing the money.

With low profit margins, one wonders why an investor would opt for such stocks. However, the dominant players in this industry will give you a clue. Naturally, an investor wants to grow his fortune. However, it would be disastrous for an institution to lose public money. This is why investors like pension funds are attracted by the small margins to choose these stocks. A pension fund would still gain a million dollars if it invested 100 million. However, such gains would not impress a private investor who wants to grow his fortune.

Stocks in the LVI market are few and characteristically easy to identify. The marginal change in their prices over years is very thin. This means that they do not lose value by large margins or gain by such margins. The stocks are also cushioned from a lot of market information. For instance, a tech company would see its shares plummet within minutes of regulatory news. However, the price of real estate stocks remains relatively stable even with major announcements.

LVI are not under-performers in all situations. There are instances when the performance is incredible, especially during a bull run. The upsurge is usually due to a rush as investors look for safer havens for their money. It means that at different points, investors who were expected to make the least returns will reap the most. However, this happens in few instances that are also far apart.

Most of the investors in LVI engage in fund hedging by placing their money on such stocks. The most rewarding moment for low volatility investors is when earnings from bonds become less impressive. This is why public fund managers like pension funds prefer such investments. Because of a reduced coverage ratio, these stocks experience incredible stability. Fund hedging in this case is performed indirectly.

There is no secret formula for identifying LVI. You need to study the market over sometime. You will identify a trend in different situations where the performance of particular stocks reacts in a particular way. The most common traders are real estate and companies that are not hugely affected by news items. The most common stocks are real estate and commodity companies that are established as well as deal with mandatory or non-optional goods.

Some analysts are of the opinion that LVI only exist in theory. The argument is that one stock may be highly volatile at one moment and then less volatile at another. If you intend to make money on the stock market, your target should be the volatile stocks. However, if you wish to minimize your losses, LVI will suit your business model.




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