Episode 264: Pim van Vliet: The Volatility Effect, Revisited
The Rational Reminder Podcast
How to Outperform a Low Risk Portfolio in Up and Down Periods
In each decade low risk conservative stocks as we call them outperform speculative stocks. Over time it's consistent but sometimes you need either leverage or some patience to really outperform. The payoff pattern is asymmetric people like a positive school where you can be rich, ten beggars, low-treat ticket kind of payoffs this is the opposite.
Pim van Vliet is on a mission to put the low volatility factor on the map. In his role as Head of Conservative Equities and Chief Quantitative Strategist at Robeco, he focuses on leveraging the effect of low-risk investing. Pim has also published a book, High Returns From Low Risk: A Remarkable Stock Market Paradox, where he unpacks some of the key aspects that guide his work and underpin his success. During this conversation, Pim shares his insights on volatility, the changing market, and combining low-risk with other traditional factors. He equips listeners with key considerations for evaluating strategies or products when allocating low-risk and offers his perspective on out-of-sample-testing, distinguishing between global-factor and cross-sectional premiums, and more. Listeners will get Pim’s perspective on the pros and cons of the Sharpe ratio, and we examine risk-adjusted returns on long and short legs before hearing his Fama-French Five Factor Model analysis. We touch on inflation and gold, and finally, Pim shares his inspiring perspective on success in his financial and personal life. Tune in today to hear more!
Key Points From This Episode:
- Introducing Pim Van Vliet and his mission to put low volatility on the map as a factor. (0:00:41)
- Defining the low-risk effect with reference to volatility and its impact on other asset classes. (0:04:47)
- Low-risk portfolio performance in relation to the changing market. (0:12:02)
- Combining low-risk with other traditional factors. (0:21:43)
- Considerations for evaluating strategies or products when allocating low-risk. (0:24:35)
- Out-of-sample testing. (0:31:28)
- Distinguishing between global factor premiums and cross-sectional premiums. (0:35:18)
- Weighing the pros and cons of the Sharpe ratio as an evaluation tool. (0:40:19)
- Examining the risk-adjusted returns of long and short legs. (0:41:20)
- Issues with the Fama-French Five Factor Model. (0:44:37)
- Why factor premiums vary through inflation regimes. (0:50:41)
- How an allocation to gold holds up as a downside hedge. (0:52:53)
- Pim’s definition of success in his life. (0:56:31)
Links:
Participate in our Community Discussion about this Episode:
Book From Today’s Episode:
High Returns From Low Risk: A Remarkable Stock Market Paradox — https://amzn.to/3rMkJxQ
Links From Today’s Episode:
Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/
Shop Merch — https://shop.rationalreminder.ca/
Join the Community — https://community.rationalreminder.ca/
Follow us on Twitter — https://twitter.com/RationalRemind
Follow us on Instagram — @rationalreminder
Benjamin on Twitter — https://twitter.com/benjaminwfelix
Cameron on Twitter — https://twitter.com/CameronPassmore
Pim van Vliet on Twitter — https://twitter.com/paradoxinvestor
Pim van Vliet — http://www.paradoxinvesting.com
'The Volatility Effect' — https://www.robeco.com/files/docm/docu-the-volatility-effect-2007.pdf
'The Volatility Effect Revisited' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3442749
'Ten Things You Should Know About Low-Volatility Investing' — https://www.robeco.com/en-int/insights/2017/07/ten-things-you-should-know-about-minimum-volatility-investing
'The Conservative Formula: Quantitative Investing Made Easy' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3145152
'Media attention and the volatility effect' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3403466
'When Equity Factors Drop Their Shorts' — https://www.robeco.com/en-int/insights/2021/02/when-equity-factors-drop-their-shorts
'The Cross-Section of Stock Returns before CRSP' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3969743
'Global factor premiums' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3325720
'Investing in Deflation, Inflation, and Stagflation Regimes' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4153468
'Five Concerns with the Five-Factor Model' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2862317
'The golden rule of investing' — https://www.robeco.com/en-int/insights/2023/04/the-golden-rule-of-investing
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