There is ample evidence that volatility management helps improve the risk-adjusted performance of momentum portfolios. However, it is less clear that it works for other factors and anomaly portfolios. We show that controlling by the upside and downside components of volatility yields more robust risk-adjusted performances across a broad set of factors and anomaly portfolios, as well as exchange-traded funds. In particular, we propose semivolatility-managed portfolios that, apart from deleveraging when downside volatility is high, exploit the higher expected returns in times of good volatility. We also study the asymptotic behavior of a Sortino ratio estimator to develop a test for direct comparison between two given portfolios. We find that our semivolatility-managed portfolios that control for both skewness and downside volatility perform better than the original portfolios and extant (semi)volatility management proposals.
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