Key insights
- The post discusses the role of minimum volatility strategies within a multi-factor portfolio, questioning its necessity given overlaps with factors like Quality and its potential drag on long-term returns. The author is considering removing the allocation, prioritizing higher expected returns over short-term volatility reduction for a 30+ year investment horizon. This suggests a slightly bearish sentiment towards low-volatility strategies in the current market environment.
Hi everyone,
I’m reviewing my portfolio and would really appreciate some input.
Right now I’m allocated like this:
20% Small Cap Value
20% Momentum
20% Quality
20% Minimum Volatility (that I was thinking about removing)
20% Classic market-cap weighted (CAPM-style index)
I’m considering whether to remove my Minimum Volatility allocation, especially given that I already have exposure to multiple factors.
My main question is about the very long term (30+ years).
From what I understand:
Factors like Quality already tilt toward more stable companies
A diversified multi-factor portfolio should already reduce volatility to some extent
Minimum Volatility seems more useful for drawdown control than for maximizing long-term returns
So I’m wondering:
Is Minimum Volatility basically redundant in a setup like this?
Does it still add meaningful diversification, or is there too much overlap (especially with Quality)?
For a 30+ year horizon, does it actually make sense to keep it, or is it just sacrificing expected returns for smoother short-term performance?
I’m not too concerned about short term volatility and I’m comfortable with drawdowns if the long-term expected return is higher.
Curious to hear your thoughts, especially if you’ve built or analyzed similar multi-factor portfolios.
Thanks!