Furthermore, among the various factor strategies, SSGA anticipates the minimum variance or low volatility factor to outperform other factors like quality, value or equal weight.
Supporting the minimum variance outlook, the global economic policy uncertainty is hovering at an all-time high, especially in the aftermath of the Brexit and U.S. elections, Rowley said.
“With more uncertainty, there has been a divergence of volatility as traders are willing to ‘pay up’ to hedge to tail risk,” Rowley said.
Consequently, investors who are looking to gain international exposure but are wary of potential risks that could drag down returns may want to consider a low-vol strategy to smooth out the ride.
“Therefore, to reduce risk within equities, a multi-factor combination that includes min vol may warrant consideration,” Rowley added.
For instance, State Street Global Advisors offers a suite of MSCI StrategicFactors ETFs, including broad options like the SPDR MSCI EAFE StrategicFactors ETF (NYSEArca:QEFA), SPDR MSCI Emerging Markets StrategicFactors ETF (NYSEArca:QEMM) and SPDR MSCI World StrategicFactors ETF (NYSEArca:QWLD). The SPDR strategic factor suite select components based on a combination of three market factors, including value, quality and low volatility.
“As global economic uncertainty is at all-time highs, investors should go beyond market cap weighted or single factor low volatility strategies to seek out better buy and hold core exposures that can help mitigate downside but still capture a potential upside,” Rowley said.
Financial advisors who are interested in learning more about market opportunities can watch the webcast here on demand.