Low Volatility Response in Brazil

The S&P/B3 Low Volatility Index Celebrates Five Years of Outperforming Its Benchmark

The COVID-19 pandemic hit the Brazilian equity market hard, causing the worst monthly performance since September 1999.[1] As measured by the S&P Brazil BMI, the Brazilian equity market lost 29.80% in March 2020. The S&P/B3 Low Volatility Index exceeded its benchmark by 640 bps during the same period. Moreover, the low volatility strategy presented superior cumulative and risk-adjusted returns over the 20-, 10-, and 5-year periods (see Exhibit 1).

S&P/B3 Low Volatility Index: Hit Ratio

To highlight the behavior of the S&P/B3 Low Volatility Index in different market circumstances, we analyzed the monthly return data in up and down markets.[2] The results shown in Exhibit 2 are asymmetric, displaying some participation in the up markets and evident downside protection.

The S&P/B3 Low Volatility Index outperformed the benchmark in down markets, providing an average monthly excess return of 2.12%; the strategy exceeded the average by more than 400 bps.


Over the long term, the S&P/B3 Low Volatility Index presented relatively attractive performance in comparison with its benchmark, providing more evidence for the existence of the Low Volatility anomaly, and suggesting that volatility reductions achieved during declining markets do in fact potentiate the benefit of the S&P/B3 Low Volatility Index in terms of risk-adjusted returns.

Happy anniversary, S&P/B3 Low Volatility Index, and keep doing what you do!

[1]   Observed period from September 1999 to March 2020.

[2]   Up and down markets are as measured by the S&P Brazil BMI.

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