As has been widely documented throughout 2017, investors are flocking to international exchange traded funds in search of value. While many investors are looking for international bargains and diversification with ex-US ETFs, some do not want to incur the volatility often associated with international equities.
The $6.7 billion iShares Edge MSCI Min Vol EAFE ETF (NYSEArca: EFAV) is an avenue to consider for investors looking to skirt international volatility. EFAV, which turns six years old later this year, “seeks to track the investment results of an index composed of developed market equities that, in the aggregate, have lower volatility characteristics relative to the broader developed equity markets, excluding the U.S. and Canada,” according to iShares.
EFAV tracks the MSCI EAFE Minimum Volatility (USD) Index, a low volatility answer to the widely followed MSCI EAFE Index.
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.
For ETF investors, low-volatility strategies could produce better risk-adjusted returns, or help diminish drawdowns during times of heightened market selling while allowing an investor to participate in some equity market upside.
EFAV holds nearly 230 stocks and features exposure to about 15 countries. Japan, the United Kingdom and Switzerland are the ETF’s largest country weights, combining for over 57% of the fund’s weight. Over half of EFAV’s country weights are European nations.
Other ex-US low volatility ETFs include the iShares MSCI All Country World Minimum Volatility ETF (NYSEArca: ACWV) employs the MSCI minimum volatility selection process on the benchmark All Country World Index. Additionally, investors can target emerging market exposure through the iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEArca: EEMV), a low-vol variant on the widely observed MSCI Emerging Market Index.
EFAV allocates about a third of its combined weight to consumer staples and healthcare stocks while financial services and industrial names combine for 30% of the fund’s weight.
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