What strategy can investors employ to reduce portfolio volatility in the current environment?

The stock market is suffering a turbulent 2022 so far; and with inflation still running at a 40-year high, the Federal Reserve locked in a significant rate-hiking cycle and mid-term elections just months away, it's likely the volatility is going to remain for the time being. Investors looking for a smoother market ride should consider buying low-volatility stocks as a way to manage risk. Low-volatility strategies are designed to limit losses during periods of market decline, while still allowing for upside.

Data shows lower volatility names have typically out-performed the broader market indexes over the long term. The S&P 500 Low Volatility Index, which measures the performance of the 100 least volatile stocks in the S&P 500® based on their historical volatility, averaged a 1.2% risk-adjusted return between 2010 and 2019, compared to a 0.9% return for the S&P 500 Index. Investors should look at low-volatility stocks as a way to add diversification and stability to their portfolios as part of a longer-term strategy. One way for investors to find low-volatility names is to look at beta, which measures how volatile a stock is relative to the broader market. A beta of less than 1.0 theoretically means that the name is less volatile than the S&P 500, while a beta greater than 1.0 points to a stock with more volatility.