Today, we’re seeing investors use min vol ETPs as a means to gain access to the equity markets while maintaining some downside protection. In January, ETP flows were decidedly risk on in nature, with equities accounting for 94% of flows. With min vol ETPs, investors can dip back into the market while potentially mitigating their risk exposure. But it’s not just the US equity market we’re talking about here. Min vol funds also give investors access to global markets. For instance, the iShares MSCI Emerging Markets Minimum Volatility ETF – EEMV – invests in some of the least volatile stocks in emerging markets. It has attracted $463 million in new flows year-to-date, while USMV has attracted $651 million in flows and the PowerShares S&P 500 Low Volatility Fund has attracted $101 million.
With investors now watching the US budget sequester – automatic federal government spending cuts set to take effect on March 1 – Russ Koesterich expects market volatility to rise. The flows are showing that ETP investors are using min vol funds to stay invested in the equity markets even if political headwinds cause some short-term bumps.
Dodd Kittsley, CFA, is the Head of Global ETP Market Trends Research for BlackRock.