Until recently, the continuous rise of the S&P 500^® seemed unstoppable. However, with the return of market volatility and macroeconomic uncertainty, there has been a growing appetite for defensive strategies and risk mitigation.

The S&P 500 Low Volatility Index has emerged as a standout performer, further solidifying its reputation for stability in uncertain times. This index tracks the 100 companies within the S&P 500 with the lowest volatility and has demonstrated significant outperformance YTD. As of April 4, 2025, the index was up 0.5%, surpassing the S&P 500 by 14.0%. Since the market’s peak on Feb. 19, 2025, to April 4, 2025, the index was down 3.7%, while the S&P 500 was down 17.3% (see Exhibit 1).

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Diversified Approach to Risk Mitigation

Beyond its defensive stance, this index offers a diversified approach to risk mitigation by reducing exposure to mega-cap stocks and increasing weight to defensive sectors such as Utilities and Consumer Staples (see Exhibit 2). This positioning has contributed to its recent outperformance, which can be attributed to a combination of allocation and selection effects.

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Domestically Biased Revenue Exposure

Another factor potentially contributing to the recent outperformance of the S&P 500 Low Volatility Index is the higher proportion of revenue generated by its constituents within the U.S. Exhibit 3 illustrates the weighted-average revenue exposure of the index compared to its benchmark. On average, the constituents of the S&P 500 Low Volatility Index derived 72.60% of their revenue from the U.S., in contrast to 59.67% for the S&P 500.

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Defensiveness from a Long-Term Perspective

The S&P 500 Low Volatility Index has a track record of outperforming the broader market during significant drawdown events. As illustrated in Exhibit 4, the index consistently outperformed during most major drawdowns since the late 1990s.

Moreover, this index’s defensive approach has not hindered its long-term return potential. As illustrated in Exhibit 5, since 1990—including some back-tested performance—the index has nearly matched the performance of the S&P 500, underscoring its long-term credentials.

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Performance in Different Market Conditions

Exhibits 6 and 7 show the performance of the S&P 500 Low Volatility Index in different market and macroeconomic conditions. The defensive qualities of the index are here further showcased, as the index overperformed the benchmark in periods of market stress and in macroeconomic environments of falling GDP growth.

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Conclusion

By focusing on stocks with the lowest volatility, the S&P 500 Low Volatility Index has recently shown robust outperformance relative to the broader market. Its diversified exposure to defensive sectors, bias towards domestically oriented stocks, coupled with reduced reliance on mega-cap ones, has also significantly contributed to its lower drawdowns and long-term risk-adjusted outperformance.

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