Investors looking for a less volatile basket of global stocks can consider several exchange traded funds, including the iShares Edge MSCI Min Vol Global ETF (CBOE: ACWV).
The low-volatility factor investments work on the idea that they help cushion against market turns, limiting drawdowns that investors experience while providing upside potential. Consequently, the low- or min-vol strategies may produce better risk-adjusted returns over the long haul, which has been backed by extensive academic research.
The $3.40 billion ACWV, which is almost seven years old, follows the MSCI All Country World Minimum Volatility Index. ACWV holds 420 stocks.
The ETF “is a well-diversified global stock portfolio that takes a holistic approach toward reducing volatility for a low fee. It should offer a smoother ride and better risk/reward profile than most of its peers over the long term,” said Morningstar in a recent note.
ACWV Looks to U.S., Japan, Switzerland
ACWV is a global ETF and as such, it holds U.S. stocks. The U.S. is by far the fund’s largest geographic exposure at almost 56%. Japan and Switzerland combine for nearly 17%. ACWV’s strategy is not entirely focused on selecting the least volatile stocks.
“It also takes into account how stocks interact with each other to affect the portfolio’s overall volatility. The fund’s global reach creates better diversification opportunities than a narrower minimum-variance strategy, which should facilitate a slightly greater reduction in volatility relative to its parent index,” according to Morningstar.