Dan Philips on a Quality Low Volatility Approach

The Slow Growth Environment

Philips thinks that in the near horizon, a slow growth environment is likely. He sees the Fed as likely keeping rates elevated for some time, which will lead to slower growth. “We don’t expect a lot of growth in the equity market,” he observed.

According to Philips, risk opportunities are available in high yield. Still, within equities, there is some potential upside in quality stocks that are low volatility. “We like this as a strategy all of the time – it’s a nice core solution for a portfolio,” he said, noting that it outperforms in times of high volatility.

Volatility spikes have more frequent in the new economic regime, making this strategy more appealing. Philips pointed to geopolitical tensions as another reason to consider a lower volatility strategy.

Quality Low Volatility Approach

“You don’t want quality or low volatility, you want quality and low volatility together,” Philips said. He shared that though there are plenty of stocks that offer low volatility, investors want the upside. Upside comes with quality. Meanwhile, quality stocks alone could end up bringing in both high and low volatility. Philips sees the intersection as a sweet spot. “Let’s stick to the stuff that works best in the portfolio.”

The FlexShares US Quality Low Volatility Index Fund (QLV) is built to capture this combination. An international spin on this idea can be found in the FlexShares Developed Markets ex-US Quality Low Volatility Index Fund (QLVD).