Low volatility investing exploits low risk anomalyBY ALEX DUNNIN | TUESDAY, 25 MAR 2014 12:40PMThe fallacy that taking high investment risks by its nature leads to high returns leads to too many investors taking unnecessary risks, said a major European investment manager.
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Whilst these comments are interesting and true in part, the fact is that risk in asset classes and sub-classes is not static and indeed, changes over time. There is thus an inherent bias and flaw in just labeling assets as high, medium or low risk.
The fundamental questions which should be asked are: where are we now in the investment cycle (ie positional awareness), and am I being adequately rewarded for the risk I am taking in an asset class?
Once these questions are addressed, then the investor is better placed to make more sensible and effective asset allocation decisions.