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.
MSCI, the index purveyor for USMV’s underlying benchmark, highlights beta, the degree to which stocks tend to move in the same direction as the market, along with dividend yields. Low-vol ETFs have been strengthening this year as they limited downside risk when the markets slipped and strengthened on increased defensive bets during turbulent times.
Year-to-date, investors have pulled about $74.3 million from USMV while SPLV has seen inflow of almost $473 million. In the third quarter, USMV has lost $316.2 million in assets.
“The net result is another testament to the fact that we are our own worst enemies. From May 1, 2016, through June 30, 2017, USMV generated an annualized return of 12.61% for investors. Meanwhile, investors’ collective cash-flow-weighted return was negative 0.63%. This yawning behavior gap shows there is ample room for improvement in the manner in which investors use these funds,” according to Morningstar.
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