Low-volatility stocks produce returns almost as good as the S&P 500 with far fewer gut-wrenching price swings.
Low-volatility stocks promise to dampen investors’ portfolio risk while nevertheless allowing them to remain invested in the stock market.
But do they live up to their promise? They do. Even though low-volatility stocks’ advantage has diminished, these stocks on average are able to produce returns almost as good as the overall market while incurring significantly less volatility.
That’s a winning combination, which would be attractive at any time, but especially now with the stock market so overvalued. As I discussed in a recent column, the U.S. equity market currently is more overvalued than at almost any other time in U.S. history, reflecting an investing climate with a significantly elevated level of downside risk.
The long-term performance of low-volatility stocks is plotted in the chart above. It plots two indices of such stocks: The S&P 500 Low Volatility Index, which contains the 100 stocks within the S&P 500 SPX that have incurred the least recent volatility, and the MSCI USA Minimum Volatility Index, which is constructed from a subset of low-volatility stocks within the mid- and large-cap universes. Both indices closely tracked the S&P 500 for all but the last few years, when the S&P 500 pulled ahead.
Even so, these two low-volatility indexes have continued to beat the overall market on a risk-adjusted basis. The S&P 500 Low Volatility Index produced a 10.3% annualized total return from Nov. 30, 1990, to the end of May 2026, while the MSCI USA Minimum Volatility Index produced a 10.4% annualized total return. The S&P 500’s comparable total return was 11.5% annualized. Furthermore, both of these low-volatility indexes were roughly 21% less volatile than the S&P 500. It’s a winning combination for these two indexes to reduce risk by a fifth while forfeiting only about a 10th of the S&P 500 return.
One way of understanding why this is a winning combination: To reduce your portfolio’s volatility by a fifth, you would need to sell 20% of your stocks and put the proceeds into T-Bills. If history is any guide, the resultant portfolio would have a similar risk profile as one fully invested in either of these low-volatility portfolios, but perform less well.
With this in mind, I constructed a list of low-volatility stocks that are currently popular among the investment newsletters that my performance auditing firms tracks. Specifically, I first restricted the list to the 100 least-volatile stocks in the S&P 500 (following the lead of the S&P 500 Low Volatility Index), and then restricted the list further to those that are recommended by at least two monitored newsletters. Ten stocks survived this winnowing process, and they are listed in ascending order of their volatility.
