EXECUTIVE SUMMARY

S&P Dow Jones Indices (S&P DJI) publishes a series of low volatility indices, offering market participants a perspective on the returns of lower volatility equities and forming the basis for index-linked products globally.1 Low volatility indices have typically outperformed their underlying broad market benchmarks on both an absolute and a risk-adjusted basis.2 S&P DJI recently extended the returns history for one of the widely followed low volatility benchmarks—the S&P 500 Low Volatility Index—back to February 1972. Using the additional two decades of return information, this paper:

• Offers a longer-term perspective on the ability of low volatility indices to combine downside protection and upside participation;

•  Assesses the relative importance of equity market movements and interest rates in explaining the low volatility index’s performance; and

• Demonstrates the potential applications of low volatility indices.