Skittish investors looking to participate in the emerging markets rebound can do so by tapping the low volatility factor and exchange traded funds such as the iShares MSCI Emerging Markets Minimum Volatility ETF (Cboe: EEMV).
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.
“However, given the widespread under-allocation to EM within the portfolio of many of our clients, we believe most individual investors aren’t in this camp,” said BlackRock in a note out Wednesday. “For those who are skittish about the volatility of EM equities, minimum volatility investments might be a more palatable exposure to the asset class. Funds such as the iShares Edge MSCI Min Vol Emerging Markets ETF (EEMV), seek to track indices that aim to provide broad exposure to an asset class but in a manner designed to reduce risk.”
Evaluating EEMV ETF
EEMV is up 7.05% year-to-date, trailing the MSCI Emerging Markets Index by 411 basis points. Like other low volatility ETFs, the aim of EEMV is to not capture all of the upside of the underlying asset class in a bull market, but rather to provide a buffer on the downside. When emerging markets stocks swooned last year, EEMV lost 5.80% compared to 15.30% for the MSCI Emerging Markets Index.
“True to its design, EEMV has historically provided investors with downside risk mitigation. In 2018, EEMV declined 58% less than that of broad EM as measured by the MSCI Emerging Markets Index,” said BlackRock. “If we extend the analysis to a longer period of time, similar performance behaviors hold. Since its first full month of live performance in November of 2011, EEMV has exhibited a downside capture of only 78%, reduced volatility by over 23%, and dampened the maximum drawdown by 22%.”