A Volatility Chart

Low Volatility Equity

Our Low Volatility Equity strategy seeks to outperform the S&P 500® Index over a full market cycle with less volatility while capturing VRP. It offers a beta of 0.75.

Strategy Goals

The U.S. Low Volatility Equity (LVE) strategy is designed to capitalize on the tendency of implied volatility to exceed subsequent realized volatility 

While traditional low volatility approaches focus on stock selection and exposure to a select number of factors, the LVE strategy employs an entirely different approach. LVE creates implicit downside protection through a core position in the S&P 500® and Treasury Bills, and then systematically sells fully collateralized equity index call and put options (no leverage) to capture the options-based Volatility Risk Premium (VRP). Over a full market cycle, income generated from option sales is expected to more than offset the equity risk premium foregone. 

As one of Parametric’s Volatility Risk Premium (VRP) strategies, it allows investors to harvest the volatility risk premium – a distinct, persistent and significant return stream – without the use of leverage or market forecasts through the systematic sale of equity index options. These strategies are designed to increase portfolio diversification at a lower cost than traditional alternative investments, without sacrificing liquidity.

Portfolio Construction

U.S. Low Volatility Equity provides protection by “de-risking” base portfolio, then selling fully-collateralized index options to generate additional return.

Low Volatility Equity - Portfolio Construction

For illustrative purposes only. Individuals may not invest directly in indexes. Investments subject to loss. Information subject to change.

Low Volatility Equity is offered by Parametric Investment & Overlay Strategies.  For additional information please visit the Disclosure page.

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