Q. What are the options to reduce my investment's volatility?
A. If volatility concerns you, in addition to diversification, there are volatility strategies that may help protect your portfolio.
Below we will focus on minimum volatility ETFs, also mention a few other options.
What Is a Min Vol ETF?
A min vol ETF attempts to reduce exposure to volatility by tracking indexes that aim to provide lower-risk alternatives. Some min vol ETFs accomplish this objective by purchasing securities that exhibit relatively low volatility and concentration risk (i.e., heightened exposure to a particular asset class, investment characteristic, or other risk factor that results from a heavily weighted allocation). It is worth noting that some min vol ETFs may not have lower concentration risk than broadly diversified market indexes.
A min vol ETF does not eliminate risk exposure to volatility, and may not prevent a loss in the event of a downturn. Low volatility funds may underperform when the broad market is doing well, and they can experience declines during sharp corrections. However, the expectation for a min vol ETF investor is that any potential losses during a market decline might be smaller relative to other investments that may have more exposure to volatility. As a result, a less risky portfolio could recover more quickly than the broad market after a downturn when stocks recover.
Examples of Min Vol ETFs?
If you are concerned about a US stock market decline, you may want to consider researching min vol ETFs, the largest of which by net assets are:
If you have global investments and are concerned about some of the volatility risks that have emerged out of China, Europe, and other parts of the world, there are also non-US min vol ETFs. The largest non-US min vol ETFs by net assets are:
In next blogpost, we will mention a few other investment options to reduce exposure to market volatility.
A. If volatility concerns you, in addition to diversification, there are volatility strategies that may help protect your portfolio.
Below we will focus on minimum volatility ETFs, also mention a few other options.
What Is a Min Vol ETF?
A min vol ETF attempts to reduce exposure to volatility by tracking indexes that aim to provide lower-risk alternatives. Some min vol ETFs accomplish this objective by purchasing securities that exhibit relatively low volatility and concentration risk (i.e., heightened exposure to a particular asset class, investment characteristic, or other risk factor that results from a heavily weighted allocation). It is worth noting that some min vol ETFs may not have lower concentration risk than broadly diversified market indexes.
A min vol ETF does not eliminate risk exposure to volatility, and may not prevent a loss in the event of a downturn. Low volatility funds may underperform when the broad market is doing well, and they can experience declines during sharp corrections. However, the expectation for a min vol ETF investor is that any potential losses during a market decline might be smaller relative to other investments that may have more exposure to volatility. As a result, a less risky portfolio could recover more quickly than the broad market after a downturn when stocks recover.
Examples of Min Vol ETFs?
If you are concerned about a US stock market decline, you may want to consider researching min vol ETFs, the largest of which by net assets are:
- iShares Edge MSCI Min Vol USA ETF ( USMV)
- Invesco S&P 500® Low Volatility ETF ( SPLV )
- iShares Edge MSCI Min Vol EAFE ETF ( EFAV)
If you have global investments and are concerned about some of the volatility risks that have emerged out of China, Europe, and other parts of the world, there are also non-US min vol ETFs. The largest non-US min vol ETFs by net assets are:
- iShares Edge MSCI Min Vol EAFE ( EFAV)
- iShares Edge MSCI Min Vol Emerging Markets ETF ( EEMV)
- iShares Edge MSCI Min Vol Global ETF ( ACWV )
In next blogpost, we will mention a few other investment options to reduce exposure to market volatility.
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