Stock markets are as calm as they've been in five decades, causing investors to crowd into funds that aim to minimize volatility. Goldman Sachs is questioning whether that is the right goal in such a calm market.
"Fund managers should seek to maximize prospective risk-adjusted returns rather than minimize realized volatility," said Goldman Sachs' chief U.S. equity strategist, David Kostin.
Put simply, investors are focusing too much on finding stocks that offer just low volatility and not enough on stocks that offer both low volatility and high returns.
Kostin has updated the bank's list of stocks that can maximize returns in a low-volatility market, removing tech giants Facebook and Alphabet and adding stocks including Autozone, Discover Financial Services, Dollar Tree, HP Inc. and Intel.
A widely watched number called the VIX, which is an options-based measure of how much it would cost to protect a stock portfolio from a market decline in the near future, remains near record lows. The S&P 500 volatility in the last six months ranked in the first percentile going back as far as 1966, according to Friday's research note. And the numbers looking ahead one month to five years suggest that the VIX will stay below its historical average, the bank said.