After European Central Bank President Mari Draghi’s remarked on higher volatility as the new norm, investors who are looking at European markets may consider low-volatility exchange traded fund options to limit the swings.
For example, the iShares MSCI Europe Minimum Volatility ETF (NYSEArca: EUMV) is beginning to outpace the Vanguard FTSE Europe ETF (NYSEArca: VGK) – both EUMV and VGK track Eurozone markets, along with the United Kingdom and Switzerland. Over the past week, EUMV gained 0.3%, whereas VGK dipped 0.1%.
EUMV tracks the MSCI Europe Minimum Volatility Index, which targets developed European market stocks that have exhibited lower volatility characteristics relative to the broader European developed markets.
Additionally, while euro-currency-hedged Eurozone ETFs were largely trending down, the PowerShares Europe Currency Hedged Low Volatility Portfolio (NYSEArca: FXEU) showed a lower dip of 1.5% over the past week, compared to the 2.5% decline in the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ).
FXEU tracks members of the S&P Eurozone BMI Index to form the S&P Eurozone Low Volatility USD Hedged Index that displayed the lowest volatility over the trailing 12-months. [Some Combination ETFs Merit Consideration]
Mari Draghi shook up the markets after he told investors to get used to bond volatility on Wednesday, which triggered a bout of volatility in global government bond markets and unsettled equity prices in both U.S. and European markets this week.
“We should get used to periods of higher volatility,” Draghi said at a press briefing, Bloomberg reports. “At very low levels of interest rates, asset prices tend to show higher volatility. The Governing Council was unanimous in its assessment that we should look through these developments and maintain a steady monetary policy stance.”
Draghi pointed to several factors that contributed to the recent market pullback, including improved economic and inflation outlook, heavier issuance, poor market liquidity, volatility and absence of certain investors.
The remarks also sent benchmark 10-year Treasury yields below its 200-day simple moving average.
“This is sheer panic in the market from the standpoint of what’s been happening in Europe,” Thomas di Galoma, head of fixed-income rates and credit at ED&F Man Capital Markets, said in the article. “Most of Wall Street is guarded here as far as taking on new positions.”
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Max Chen contributed to this article.