Revisiting A Popular Low Volatility ETF

Momentum for low volatility exchange traded funds, such as the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV), cooled in the latter stages of 2016, but USMV still merits consideration for conservative investors looking to participate in equity market upside.

The low-volatility factor investments work on the idea that they help cushion against market turns, limiting drawdowns that investors experience while providing upside potential. Consequently, the low- or min-vol strategies may produce better risk-adjusted returns over the long haul, which has been backed by extensive academic research.

MSCI, the index purveyor for USMV’s underlying benchmark, highlights beta, the degree to which stocks tend to move in the same direction as the market, along with dividend yields. Low-vol ETFs have been strengthening this year as they limited downside risk when the markets slipped and strengthened on increased defensive bets during turbulent times.

“As the name suggests, the fund’s managers seek to invest in a portfolio of U.S. equities that, in aggregate, have lower volatility characteristics relative to the broader equity market. With a relatively low expense ratio of 0.15%, it is easy to understand why this fund has drawn the interest of investors to the tune of more than $12 billion in net assets,” according to Investopedia.