A tumultuous year for the equities market has pushed more investors into low-volatility exchange traded fund strategies that try to diminish the swings.
The BlackRock (NYSE: BLK) iShares minimum volatility suite has attracted $7 billion in net inflows this year and now hold about $15 billion in assets under management, reports James Comtois for Pensions & Iinvestments.
The iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV), which selects stocks based on variances and correlations, along with other risk factors, has growth to $6.7 billion in AUM after gathering $2.9 billion in net inflows so far this year, according to ETF.com. Additionally, the iShares MSCI EAFE Minimum Volatility ETF (NYSEArca: EFAV), which tracks developed Europe, Australasia and Far East markets, saw $2.2 billion in inflows and iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEArca: EEMV), which tracks developing countries, experienced $1.1 billion in inflows.
“2015 has been an outsized year. This really was a banner year,” Sara Shores, managing director and global head of smart beta at BlackRock, told Pensions & Investments.
Data from eVestment LLC reveals the low-vol strategy has been very popular among institutional investors where investment assets were at $110.4 billion as of September 30, or up 155% from three years earlier.
The low-volatility theme has been gaining traction as market uncertainty rises and prevailing risks grow after a multi-year bull run.
For example, stock investors had to sail through turbulent waters this year as the China sell-off and Greek debt problems fueled volatility. The low-vol approach allowed investors to outperform the broad markets, with USMV up 3.7% year-to-date, compared to the S&P 500’s 1.5% gain.
Additionally, as more baby boomers reach their Golden Years, defined benefit plans are shifting toward more defensive positions to protect assets.
“I think we’re still very much in the growth phase, because a lot of [defined benefits]plans have a lot of risk assets on their books,” Jeffrey Levi, a partner at money management consultant Casey, Quirk & Associates LLC, told P&I. “As we get closer to payouts, you’ll see plans want to move out of equities entirely. At some point, plans want to move to assets that provide very predictable cash flows. I still think we’re years away from that, though.”
Ted W. Noon, senior vice president and director of North American business development, also attributes the rising popularity of low-vol strategies to the desire for investors to diminish risk and the fact that the investment theme has been working.
“These strategies have delivered what they were designed to offer — equity returns at lower volatility than capitalization-weighted equity markets,” Noon told P&I.
For more information on the low-vol strategy, visit our low-volatility category.
Max Chen contributed to this article.