To say that global financial markets were surprised by results of the June 23rd Brexit referendum would be an understatement. Most market observers had anticipated a victory for Remain. When the Leave camp won, global financial markets reeled from the shock.
Low volatility strategies are designed to attenuate returns in either direction, and as such, mitigate the effects of days like June 24 and 27. The S&P 500 Low Volatility Index, for example, declined only 1.8% after last Friday and Monday’s tumultuous trading, a 3.5% outperformance compared to the broader S&P 500’s decline of 5.3%. Year-to-date, it is up 7.5% versus S&P 500’s -1.1% return. As the chart below shows, bracing also proved to be prudent across the U.S. market capitalization spectrum and outside the U.S. as well.