TY - JOUR T1 - Fact and Fiction about Low-Risk Investing JF - The Journal of Portfolio Management SP - 72 LP - 92 DO - 10.3905/jpm.2020.1.146 VL - 46 IS - 6 AU - Ron Alquist AU - Andrea Frazzini AU - Antti Ilmanen AU - Lasse Heje Pedersen Y1 - 2020/05/31 UR - https://pm-research.com/content/46/6/72.abstract N2 - Low-risk investing within equities and other asset classes has received a lot of attention over the past decade. An intensive academic debate has spurred, and been spurred by, the growing market for low-risk strategies. This article presents five facts and dispels five fictions about low-risk investing. The facts are as follows: Low-risk returns have been (1) strong historically, (2) highly significant out-of-sample, (3) robust across many countries and asset classes, and (4) backed by strong economic theory but, nevertheless, (5) can be negative when the market is down. The fictions this article dispels are that low-risk investing (1) delivers weaker returns than other common factor premiums, (2) is mostly about betting on bond-like industries, (3) is especially sensitive to transaction costs and only works among small-cap stocks, and (4) has become so expensive that it cannot do well going forward. Lastly, the article dispels the fiction that (5) the capital asset pricing model (CAPM) is dead and so is low-risk investing—this statement is a contradiction. If the CAPM is dead, then low-risk investing is alive.TOPICS: Exchanges/markets/clearinghouses, volatility measures, risk managementKey Findings• Low-risk investing has historically delivered significant risk-adjusted returns, both in-sample and out-of-sample.• Low-risk investing can be applied across asset classes, with strong returns in equities, government bonds, credit markets, and beyond.• Low-risk investing can be applied based on statistical risk measures (e.g., beta) or fundamental risk measures (e.g., stable profits). ER -