A Volatility-Reducing ETF Strategy Tapping Resurgent Developing World Stocks

The low volatility factor is one of the most accessible and popular factors in the world of exchange traded funds. Low volatility’s popularity and utility are not limited to U.S. stocks.In fact, there are avenues for investors to trim volatility with emerging markets equities.

The low or minimum volatility strategy targets stocks that have lower expected risk or less idiosyncratic risks. Specifically, the strategy targets equities that exhibit lower beta, a measure of volatility or systematic risk of a security to that of the overall market. Consequently, minimum volatility portfolios are constructed with stocks that exhibit lower market risk or beta.

The iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEArca: EEMV), a low-vol variant on the widely observed MSCI Emerging Market Index, is a solid option for investors looking for a volatility-reducing strategy that provides exposure to resurgent developing world stocks.

“If you are looking for a emerging-markets fund, this Silver-rated ETF is one to consider. It offers a well-diversified, low-cost portfolio that should provide a smoother ride and better risk/reward profile than most of its peers in the category. To achieve that, the fund uses an optimizer to construct the least-volatile portfolio possible using constituents of the MSCI Emerging Markets Index under a set of constraints,” said Morningstar in a recent note.