Kent Hargis

With markets so calm, it’s easy to become complacent about the corrosive effects that volatility can have on long-term investment success. If you don’t need the money for a long time, you can ride out the inevitable market squalls. But if you’re close to or already drawing from those funds, volatility can be costly.

As talk of an early Fed “tapering” triggered a sell-off in bonds, safe-haven equities have also suffered. Can low-volatility strategies survive rising rates and an unraveling of the safety trade, in which investors rushed headlong into safe assets no matter the cost? We say, yes—but you’ll need an active approach to navigate the near-term pitfalls.

After years of chasing safety at all costs, investors are now reaching for opportunities in long-spurned riskier stocks. But they will still want to safeguard their portfolios against painful market swings in the future.

Less volatile, defensive stocks have been so popular lately that many investors are now asking whether the low-volatility opportunity has come and gone. The question highlights why we think a multifaceted, actively managed approach is the way to go when investing in this space. These strategies have more levers to pull to avoid near-term risks and, thus, to extend the long-term return potential of low-volatility stocks.