For a long time, I've pointed out that momentum and defensive stocks tend to do better than they should in theory. This poses the question: how risky are they?
My table might help answer this. It shows returns and some standard measures of risk for my no-thought portfolios over the past 10 years: there are of course countless ways of measuring defensives and momentum, but these portfolios are, I hope, representative of the general properties of such stocks.
Risk and return on no-thought portfolios | |||||
---|---|---|---|---|---|
Momentum | Defensives | Value | High beta | FTSE 350 | |
Return | 9.58 | 3.49 | -4.77 | -2.37 | 1.85 |
Std deviation | 20.47 | 13.89 | 31.14 | 33.15 | 18.70 |
Sharpe ratio | 0.47 | 0.25 | -0.15 | -0.07 | 0.10 |
Beta | 0.82 | 0.62 | 1.23 | 1.48 | 1.00 |
Worst month | -17.5 | -20.4 | -37.7 | -43.2 | -25.8 |
Alpha | 8.47 | 2.15 | -4.16 | -2.05 | 0.00 |
(p-value, %) | 5.7 | 37.7 | 51.6 | 71.4 | na |
Annualised data based on weekly returns in the past 10 years |