La Française: DYNAMICALLY LEVERAGING THE LOW-VOLATILITY EFFECT

by Marcel Sibbe, Dr. Denisa Čumova, FRM La Française Systematic Asset Management.

When the probability of market losses is low, we increase beta to one through leverage. Conversely, during periods of heightened market stress, we reduce beta or hedge exposure to preserve the downside resilience of low-volatility portfolios. Empirical evidence from European markets shows that this approach enhances returns while preserving the defensive characteristics of low-volatility portfolios. It outperforms traditional low-volatility strategies and those with a fixed target beta of one and can also be extended to other defensive strategies, such as multi-factor portfolios, to further improve their risk-return profiles.