Global Low-Volatility ETFs for Turbulent Times

Sweta Jaiswal, FRM

The global markets are struggling with a new virus threat that has already claimed 80 lives in China. The novel coronavirus has been spreading really fast over the past week, having infected people in Hong Kong, Australia, Malaysia, Thailand, France, Japan, Taiwan, Vietnam, Singapore, South Korea, Macao and Nepal, with its epicenter in Wuhan, China.

Thailand and Hong Kong’s count is eight patients each, the United States and Macau have already confirmed five cases each, Taiwan, Australia, Singapore and Malaysia each have confirmed four, three each in France and Japan, Vietnam and South Korea have reported two each, and one each in Canada and Nepal. Notably, authorities in the United States, France and Japan are planning to evacuate their nationals from Wuhan (read: ETF Strategies to Combat Coronavirus Outbreak).

In this regard, chief strategist at Principal Global Investors in London, Seema Shah, has said, “the Wuhan coronavirus outbreak has the potential to whipsaw Chinese equities and, indeed, all global risk assets. With valuations elevated, asset classes are already vulnerable to shifts in sentiment, and memories of the meaningful economic impact of SARS has [have] the potential to play havoc with market confidence.”

Moreover, according to an official statement from Saudi Arabia, the movements in the global oil markets are being closely monitored to analyze fall in demand due to the rapidly spreading coronavirus. Meanwhile, Trade Minister of Singapore mentioned that the country’s economy will suffer hugely from the coronavirus outbreak as a large chunk of the tourists to the nation are Chinese nationals. Notably, Singapore was one of the worst hit nations outside of China in the 2003 Severe Acute Respiratory Syndrome pandemic (read: What Lies in China ETFs' Fortunes in the Year of Rat?).

ETFs to Play

Against such a backdrop, seeking refuge in low-volatility products seems judicious. These global low-volatility products could be intriguing choices for those who want to stay invested in equities but like the idea of focusing on minimum volatility. Low-volatility ETFs generally tend to offer positive risk-adjusted gains, though not enormous.

iShares Edge MSCI Min Vol Global ETF ACWV

The United States is the top holding of the fund, followed by Japan, Switzerland and Canada. Financials, Consumer Staples, Information Technology and Communication get a double-digit weight in the fund. The fund charges 20 bps in fees. 

iShares Edge MSCI Min Vol EAFE ETF EFAV

EFAV looks to replicate the performance of international equity securities that have lower absolute volatility. No single stock makes up more than 1.61% of the portfolio. Country-wise, the fund appears more focused on Japan (28.5%), Switzerland (13.7%) and United Kingdom (11.6%) equities. The fund charges 20 bps in fees (read: ETFs to Buy as Flare-up in Middle-East Tensions Spurs Volatility).

iShares Edge MSCI Min Vol Europe ETF EUMV

It tracks the MSCI Europe Minimum Volatility Index giving exposure to 174 European stocks having low-volatility characteristics relative to the broader European developed equity markets. The product charges 25 bps a year.

Like many other funds in the space, the ETF provides higher diversification benefits with none of the securities making up for more than 1.59% of assets. In terms of country exposure, United Kingdom takes the largest share at 21%, followed by Switzerland (20%), France (13%) and Germany (11.7%).

Legg Mason Low Volatility High Dividend ETF LVHD

This ETF provides stable income through investment in stocks of profitable U.S. companies, with relatively high dividend yields, lower price and earnings volatility. Utilities, Real Estate and Consumer Staples make up the top three sectors with a double-digit allocation each. It charges 27 bps in annual fees.

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iShares Edge MSCI Min Vol Europe ETF (EUMV): ETF Research Reports
 
iShares Edge MSCI Min Vol Global ETF (ACWV): ETF Research Reports
 
Legg Mason Low Volatility High Dividend ETF (LVHD): ETF Research Reports
 
iShares Edge MSCI Min Vol EAFE ETF (EFAV): ETF Research Reports
 
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