Investors Wanting Global Exposure Must Do So Strategically

Market volatility has been the new normal the past few weeks and for investors who want to dip their toes in the global market, they will have to do so strategically. This means looking at funds that can minimize volatility while at the same time, capture any upside in the markets like the iShares Edge MSCI Min Vol Global ETF (BATS: ACWV).

ACWV seeks to track the investment results of the MSCI ACWI Minimum Volatility (USD) Index. The fund generally will invest at least 90 percent of its assets in the component securities of the underlying index and in investments that have economic characteristics that are substantially identical to the component securities of the underlying index.

“Global-stock funds hold a certain appeal for investors who want to reduce their portfolio’s complexity while maintaining diversification across multiple global regions,” wrote Daniel Sotiroff of Morningstar. “Combining a broad portfolio with a minimum-volatility strategy should help reduce risk and smooth out returns relative to a market-cap-weighted benchmark. Throw in a low expense ratio and the result is a compelling, all-in-one fund for long-term investors.”

The index itself measures the combined performance of equity securities in both developed and emerging markets that, in the aggregate, have lower volatility relative to the broader developed and emerging markets. ACWV offers the global diversification investors need while keeping market volatility in check when news concerning trade wars permeate the capital markets.

“The fund tracks the MSCI ACWI Minimum Volatility Index. It uses an optimizer that selects and weights stocks from the MSCI All Country World Index in a way that minimizes expected volatility,” wrote Sotiroff. “It looks for stocks with low levels of expected volatility, but it also considers how stocks behave relative to one another. Therefore, it can overweight volatile stocks if their low correlations are expected to reduce the portfolio’s overall volatility.”

The advantage of investing in a single ETF like ACWV is getting the necessary global exposure without taking on the additional risk of having separate stocks in global markets a la the “one-stop-shop” approach.

“Minimum-volatility strategies can be an effective way to maintain exposure to stocks while mitigating risk,” Sotiroff wrote. “Defensive stocks tend to lag during market rallies, but they tend to hold up better than most during downturns. While minimum-volatility strategies, such as this one, may not offer higher returns than the market, historically they have offered better risk-adjusted performance. The reduction in risk should outweigh the impact of potentially lower returns.”

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