Getting Defensive in Emerging Markets

Investors have heard plenty about the struggles of emerging markets stocks and the related exchange traded funds this year. The widely followed MSCI Emerging Markets Index entered Monday with a year-to-date loss of nearly 13%.

Emerging markets low volatility strategies have been significantly less bad. Entering Monday, the iShares MSCI Emerging Markets Minimum Volatility ETF (Cboe: EEMV) was down just 5.60% year-to-date.

EEMV is 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.

“From the perspective of factor investing, in the current environment, we favor momentum and minimum volatility, are neutral on value and quality, and underweight size,” said BlackRock in a recent note. “As for minimum volatility, a slowing growing economy favors this more defensive factor. Valuations are reasonable, and its relative strength markedly improved in October amid an increasingly defensive tone in equity markets.”

Examining EEMV ETF

EEMV targets the MSCI Emerging Markets Minimum Volatility Index and holds 315 stocks. The ETF’s three-year standard deviation of 11.31% is well the 14.88% found on the MSCI Emerging Markets Index. EEMV allocates over 40% of its weight to Chinese and Taiwanese stocks.

Investors considering EEMV should note that is fund, like other low volatility ETFs, focuses more more slow and stable companies, the low volatility strategy may underperform more growth-oriented stocks if the markets turn around.