What’s The Best Minimum Volatility ETF?


As the markets continue to digest the ongoing crisis in Europe, unemployment figures, and whether or not central bank action will come to fruition-high beta equities aren't necessarily the best bet for some. That's where minimum volatility ETFs come into play.

Minimum volatility ETFs hold lower beta stocks relative to their targeted benchmark. The idea is that investors get exposure to a portfolio with minimized risks-as well as returns. The highs aren't so high, but the lows aren't too low either.

Earlier this year, my colleague Paul Baiocchi professed his love for the PowerShares S'P 500 Low Volatility Portfolio (NYSEArca:SPLV). However, there are 6 other funds that aim to provide the same strategy to investors.

MSCI ACWI Index vs ACWV Jan 2012 to YTD

The iShares MSCI All Country World Minimum Volatility Fund (NYSEArca:ACWV) is currently the only fund that targets the global equity space by selecting its holdings from the MSCI All Country World Index. Like most of the minimum volatility funds, it's prone to sector biases-consumer staples and health care stocks accounting for nearly a third of the fund. Still, at 35 bps, ACWV is competitive in pricing relative to other total market equity ETFs. Year-to-date, the fund has slightly underperformed the MSCI ACWI Index. However, it showed its true strength during the pullback that started in late April.


The iShares MSCI EAFE Minimum Volatility Fund (NYSEArca:EFAV) and the PowerShares S'P International Developed Low Volatility Fund (NYSEArca:IDLV) duke it out in the developed ex-U.S. space. PowerShares' IDLV comes out as the slightly more expensive fund, with a price tag of 25 bps, while EFAV follows behind at 20 bps. Both funds trade a few thousand shares per day, making them harder to trade for smaller investors. Size tilts and country differences are huge. Nearly 60 percent of EFAV is exposed to large-caps, while about 30 percent of IDLV is invested in the large-cap space. Japan (43 percent) and Canada (16 percent) are the heavyweights in IDLV, while the United Kingdom makes up 28 percent of EFAV with Japan (27 percent) at a close second.

IDLV came out in mid-January, but has outperformed EFAV in uptrends-likely due to EFAV's heavy exposure to large-caps.

MSCI United States Index vs. USMV

If you're willing to reach out a little further than just U.S. large-caps, then the iShares MSCI USA Minimum Volatility Fund (NYSEArca:USMV) is the best option for you. The fund selects its holdings from the MSCI USA Index-and does so for 15 bps, 10 bps less than SPLV-for much broader exposure. Health care and consumer companies make up the bulk of the fund, while it underweights technology and energy stocks when compared with the MSCI United States Index.

Going for a minimum volatility ETF is a great option for those who don't want to stomach the highs and lows in the current environment. The key is understanding the biases and tilts within these portfolios.

Contact Ugo Egbunike at uegbunike@indexuniverse.com.

At the time this article was written, the author held positions in SPLV.

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Copyright ® 2012 IndexUniverse LLC . All Rights Reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: ACWV , EEMV , EFAV , SPLV , USMV



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