In August 2011, members of General Motors' pension plan investment team were considering the adoption of a low volatility strategy proposed by Martingale Asset Management. The strategy had an attractive Sharpe ratio, but it was generated by the underperformance of high risk stocks - a notion contrary to generally accepted finance theory. The team had done their own internal analysis of the strategy and, by back-testing the results, had a good sense of how the low volatility strategy performed historically. In this case, students study the asset mix of GM's pension plan and the Strategy Portfolio proposed by Martingale in order to determine whether the GM team should adapt Martingale's proposal.

Case id: 110315
Supplemental Materials: Teaching Note