Low volatility was surprisingly the worst-performing factor during last week’s market sell-off despite claims it can protect investors from heavy losses during periods of uncertainty.
When measuring five global long-short beta-neutral factor indices, low volatility saw the biggest losses in the week to 28 February by some distance plummeting 3%, according to data from FactorResearch.
Escalating fears the coronavirus could have a long-term impact on the global economy spooked investors and sparked a major sell-off in equities last week.
The S&P 500 suffered its worst week since the Global Financial Crisis falling 8.4% as the recorded number of coronavirus cases hit almost 90,000 across 55 countries worldwide.
Nicolas Rabener, managing director of FactorResearch, commented: "Most investors would consider quality or low volatility factors as safe havens for black swan events like the coronavirus. Low volatility outperformed at the beginning of last week but underperformed the market significantly on Friday."
Rabener explained the sell-off in low volatility last Friday was likely due to bond investors selling out of bond proxies and the tech sector outperforming, which is currently underweight in low volatility products.
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Size was the second worst-performing factor dropping 1.2%, closely followed by quality, which fell 0.9% last week.
This is in stark contrast to year-to-date performance where quality and momentum have been the only factors of the five to deliver positive returns.
Meanwhile, value posted the strongest performance over the week, falling just 5 basis points while momentum declined 0.6%.
Factor performance in the week to 28 February
Source: FactorResearch
