During a call to ETF Trends, Natixis portfolio manager Alexander Nary provided some insight regarding recent market volatility and how its International Minimum Volatility ETF (MVIN) has been faring.
Nary made it clear, some substantial changes to the ETF were made to take into account the recent volatility. There’s been a little higher turnover because of it.
MVIN has been overweight in Asia up until recently, but pulled back significantly to be in line with the benchmark. That was a bigger move leading into Europe and UK markets specifically, which does have MVIN closer in line with the benchmarks.
Nary noted how, from a sector point-of-view, the portfolio had been made out to be more defensive. There’s been a relative increase in consumer staples and real estate, as a move from health care and materials.
“The model is telling us that there is some risk in the market,” Nary said. “It’s a little higher than it has been certainly earlier on in the year, and even last year. I think we’ll continue to watch all different macro indicators to see when it might make more sense to risk on, but as of right now, we’ve definitely moved the portfolio a little more defensive, and we’ll closely be watching economic numbers, as well as geopolitical events that have recently been stirred up here.”
How Active Management Helps
Looking at the active management component of MVIN is such that being able to look at the model weekly means a team can really contrast and continually reassess how the market is evolving. According to Nary, this means appropriate decisions can be made in the portfolio, so it can be regularly repositioned towards its ultimate goal of providing a minimum volatility portfolio.
Natixis’ Alex Piré added to the conversation by noting, “We are buying securities that are lower risk and diversifying for the portfolio.” This is where active implementation comes into play.
While factor investing ETFs and smart beta ETFs are things to consider, the factors tend to move around in size and quality. As market volatility and the market picks up, it’s easy to see how low volatility factors that began the year or ended last year, at a higher place, are no longer at that same point.
Related: Preparing for Market Volatility With Smart Beta ETFs
As Piré states, the shift seen in the portfolio has been relatively significant, when looking back 18 months ago when the portfolio was overweight to cyclical stocks and consumer discretionary. It wasn’t positioned as a defensive stock.
With several shifts that have taken place since, and with volatility creeping up in the past two weeks, the active managers have been pushed to have the portfolio even more reliant on being defensive.
Circling back to the move out of Asia, Piré notes that when considering how portfolios are constructed, only developed markets are considered. For example, while it’s a historically lower volatility market for US investors, MVIN had a consistent overweight in Japan. Scaling back from the country, with a move towards the UK and Europe, is a way to counter the tariff war. The step was necessary.
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