• Low volatility strategies, as the name suggests, typically perform well when markets decline. Challenging traditional capital asset pricing theory, they have, anomalously, outperformed their benchmarks over time despite exhibiting lower risk.
• Due to their popularity in recent years, some critics have claimed that low volatility stocks are overbought and overvalued.
• We attempt to quantify the current valuation of low volatility. Moreover, we ask if it is possible to identify valuation environments during which low volatility strategies offer more bang for the buck.
• Relative valuation for the S&P 500® Low Volatility Index has gradually become more expensive since 2000; at the end of 2019, the low volatility index was modestly cheaper than its parent S&P 500. However, as a leading indicator of the relative performance of low volatility strategies, value has never been particularly valuable.