Even with a five-day winning streak for U.S. stocks, October has lived up to its reputation as one of the most volatile months of the year. That much is proven by the S&P 500 entering Thursday with a 1% loss for the month and needing today’s epic gains to turn positive for October.
Simply put, October has been a trying month for investors and there are still six full trading days left before the calendar turns to November. A bright spot this month for investors has been the relative (and expected) sturdiness of those exchange traded funds that employ volatility –damping methodologies.
Some low or minimum volatility ETFs have outpaced the benchmark U.S. index over the past month. Not surprisingly, one of those funds is the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), which is up half a percent despite weakness in the broader market. [Talking Alternatively Weighted ETFs]
Add the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV) to the list of notable low volatility performers this month. Coming into Thursday, USMV, which tracks the MSCI USA Minimum Volatility (USD) Index, had an October gain of 1.2% compared to a 0.9% loss for the S&P 500.
The increasing popularity of low volatility strategies within an ETF wrapper has helped bolster MSCI’s (NYSE: MSCI) already sizable footprint in the indexing business. [MSCI: Still an Indexing King]
“Designed using market-leading Barra risk models, the indexes are engineered to have a low beta to the broad market and so, they are less sensitive to market downturns. The result– MSCI Minimum Volatility Indexes consistently reduced risk in 2014 and helped investors stay the course during periods of market volatility,” according to the index provider.
At the end of the first quarter, there was over $9 trillion bechmarked to MSCI indices, including low volatility strategies.
For its part, USMV is not excessively allocated to the sectors that investors associate with being less volatile. Utilities and telecom stocks combine for 14% of the ETF’s weight, but on its own, the health care sector is nearly 18% of the ETF’s weight. Just one utilities name is found among USMV’s top-10 holdings while three health care stocks reside in that group.
MSCI’s low volatility indices are working at the global level as well. The iShares MSCI All Country World Minimum Volatility ETF (NYSEArca: ACWV) entered Thursday with an October gain of 0.9% compared to a 1.8% loss for the iShares MSCI ACWI ETF (NasdaqGM: ACWI).