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6 Meridian

Low Beta Portfolio

as of September 30, 2018

The Approach

A quantitively-driven strategy emphasizing low beta stocks. Stocks are first screened to remove those that score poorly on financial and growth measures. Those stocks that remain are then ranked according to their beta*. In 1972, Fischer Black published an academic paper describing how the security market line (the line equating stock performance to systematic risk) was too flat relative to what existing theory (Capital Asset Pricing Model, or CAPM) had proposed. Stocks with low betas performed better than what was predicted by the CAPM and stocks with high betas did not perform well enough to justify their additional risks.

The Features

A diversified portfolio of approximately 240 equally-weighted stocks, with an equal investment in the lowest beta stocks in each of the S&P large-cap, mid-cap and small-cap indices. The investment objective of the fund is capital appreciation. Our research, as well as a large body of academic research, has found that the low beta factor is associated with superior long-term risk-adjusted performance.

Risk-Return Relation 1931-2009

Return (%)
10
0
Risk (%) (Volatility)
0
10
20
30
40

Source: van Vliet, Pim. “Low-investing: a long-term perspective” (Jan 2012)