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A Global ETF That Gets Defensive

This article was originally published on ETFTrends.com.

Investors looking for a less volatile basket of global stocks can consider several exchange traded funds, including the iShares Edge MSCI Min Vol Global ETF (CBOE: ACWV) .

The low-volatility factor investments work on the idea that they help cushion against market turns, limiting drawdowns that investors experience while providing upside potential. Consequently, the low- or min-vol strategies may produce better risk-adjusted returns over the long haul, which has been backed by extensive academic research.

The $3.40 billion ACWV, which is almost seven years old, follows the MSCI All Country World Minimum Volatility Index. ACWV holds 420 stocks.

The ETF “is a well-diversified global stock portfolio that takes a holistic approach toward reducing volatility for a low fee. It should offer a smoother ride and better risk/reward profile than most of its peers over the long term,” said Morningstar in a recent note.

ACWV Looks to U.S., Japan, Switzerland

ACWV is a global ETF and as such, it holds U.S. stocks. The U.S. is by far the fund's largest geographic exposure at almost 56%. Japan and Switzerland combine for nearly 17%. ACWV's strategy is not entirely focused on selecting the least volatile stocks.

“It also takes into account how stocks interact with each other to affect the portfolio's overall volatility. The fund’s global reach creates better diversification opportunities than a narrower minimum-variance strategy, which should facilitate a slightly greater reduction in volatility relative to its parent index,” according to Morningstar.

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Although ACWV has traded slightly lower this year, its performance since inception is solid and the fund has done a fine job of presenting investors with a less volatile option relative to traditional global equity benchmarks.

“From November 2011 through August 2017, it exhibited 24% less volatility than its parent index,” said Morningstar. “It also outpaced the benchmark by 0.76 percentage points annualized during that time. Performance will not always be this strong. The fund will likely lag during bull markets and probably won’t generate market-beating returns over the long run. But it should hold up better than most of its peers during downturns and offer better risk-adjusted returns than the MSCI ACWI Index over a full market cycle.”

Morningstar has a Silver rating on ACWV.

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