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Low-risk outperformance

Momentum and defensive stocks beat the market while taking surprisingly little risk.
January 11, 2017

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   
 MomentumDefensivesValueHigh betaFTSE 350
Return9.583.49-4.77-2.371.85
Std deviation20.4713.8931.1433.1518.70
Sharpe ratio0.470.25-0.15-0.070.10
Beta0.820.621.231.481.00
Worst month-17.5-20.4-37.7-43.2-25.8
Alpha8.472.15-4.16-2.050.00
(p-value, %)5.737.751.671.4na
Annualised data based on weekly returns in the past 10 years 
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