Low-Risk Investing Without Industry Bets

August 21, 2014

Financial Analysts Journal

The strategy of buying safe low-beta stocks while shorting (or underweighting) riskier high-beta stocks has been shown to deliver significant risk-adjusted returns. However, it has been suggested that such “low-risk investing” delivers high returns primarily due to its industry bet, favoring a slowly changing set of stodgy, stable industries and disliking their opposites. We refute this.

In this paper, we show that a betting against beta (BAB) strategy has delivered positive returns both as an industry-neutral bet within each industry and as a pure bet across industries. In fact, the industry-neutral BAB strategy has performed stronger than the BAB strategy that only bets across industries and it has delivered positive returns in each of 49 U.S. industries and in 61 of 70 global industries. Putting together those industries leads to an aggregate industry-neutral BAB factor that performs very strongly — alone or versus the four-factor model. Moreover, the regular BAB factor is in fact more dependent on the industry-neutral stock selection than on industry selection.

Our findings are consistent with the leverage aversion theory for why low-beta investing is effective.



  • The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees.

    This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.