Using ETFs to Control Volatility in International Investments

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.

Click here to read Natixis’ 2017 Outlook on ETF Trends and NYSE’s exclusive 2017 Market Outlook Channel.