Funds: Back the tortoises, not the hares

Recent studies have shown that funds comprising of low-volatility stocks often do better than riskier ones. Paul Amery explains why, and tips one reliable exchange-traded fund to buy now.

Several studies have shown that if you buy a portfolio of the lowest-risk stocks you can do better than if you invest in higher-risk shares. This seems to fly in the face of conventional wisdom. So-called benchmark tyranny' may be the root cause of this effect.

The more fund managers use broad value-weighted share indices to measure their performance, the more they are forced into chasing the market's high-flyers (internet stocks in 1999/2000, financials in 2006/2007 and Apple in 2011/2012). So bubbles form because fund managers can't afford to avoid the market's latest hot favourites. But you can play this to your advantage.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Paul Amery

Paul is a multi-award-winning journalist, currently an editor at New Money Review. He has contributed an array of money titles such as MoneyWeek, Financial Times, Financial News, The Times, Investment and Thomson Reuters. Paul is certified in investment management by CFA UK and he can speak more than five languages including English, French, Russian and Ukrainian. On MoneyWeek, Paul writes about funds such as ETFs and the stock market.