Many may be wary of overseas risks, but more are looking toward global assets to diversify away form an extended bull run at home. Through an active international exchange traded fund strategy, investors can also limit risks while gaining exposure to the growth potential of foreign economies.
ETF Trends publisher Tom Lydon spoke with Nick Elward, SVP, Head of Business Development and ETFs at Natixis Global Asset Management, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk international investments and managing volatility.
“In 2017, we could see advisors reallocating portfolios into more international stocks, and maybe away from U.S.,” Elward said.
U.S. equity markets are on their ninth year bull run, with the recent surge toward record highs in the wake of Donald Trump’s election win as many anticipate the new administration could enact tax cuts, deregulation and fiscal spending to stimulate the economy. Consequently, more are growing concerned that U.S. markets may be saturated and potentially too expensive.
“On the international side, we are excited about the opportunity for us investors to invest outside the U.S.,” Elward said. “Not that they haven’t always been doing that, but in 2016, we saw U.S. markets really rally, especially after the Trump victory in November, and we think international markets trail behind.”
ETF investors interested in international markets may turn to the recently launched Natixis Seeyond International Minimum Volatility ETF (NYSEArca: MVIN).
The actively managed MVIN will focus on developed markets and try to generate long-term capital appreciation with less volatility than typically experienced by international equity markets, according to a prospectus sheet.
The minimum volatility approach helps diminish portfolio risk. Lower-risk stocks have historically offered better risk-adjusted returns than high-risk stocks from 1995 through 2015, according to Natixis.
“It makes sense to complement traditional volatility type product with low volatility products,” Elward said. “Looking back historically at low volatility stocks and how they perform relative to traditional volatility or high volatility products, low volatility individual securities, stocks or funds have outperformed.”
The fund will utilize both quantitative and qualitative factors to identify securities with lower volatility and a reduce the ETF’s overall volatility relative to the developed international equity market. The fund managers will screen for volatility of each individual equity security and correlation of each individual equity security to all other equity securities in the investment universe of international developed stocks.
The low-vol focus may also help the active ETF generate better risk-adjusted returns than other international fund strategies as the fund enjoys upside potential while limiting downside risk.
“When you look at both the performance against the risk of these products, your Sharpe ratio, if you will, is even greater,” Elward said.