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Time to Buy Global Low-Volatility ETFs?

Sanghamitra Saha

Tensions inthe Strait of Hormuz have been picking up since the U.S. Navy destroyed an Iranian drone. Almost a month ago, the United States and Iranian officials said the latter downed a U.S. military drone near the Strait of Hormuz. In any case, both countries have been at loggerheads for about a year (read: Iran Downs U.S. Drone: Sector ETFs & Stocks to Gain).

If this isn’t enough, two Iranian grain ships have been stuck for weeks at Brazilian ports, unable to return to Iran due to lack of fuel, which state-run oil firm Petrobras declines to sell due to sanctions imposed by the United States.

Trade war tensions between the United States and China, Japan and South Korea have been concerns of late. The acting chief of the International Monetary Fund (IMF) indicated that central bankers and other policy makers need to roll out more stimulus if global economic growth, already hurt by \ trade war, worsens. In April, the IMF lowered its forecast for global growth by 0.2 percentage point to 3.3%, and then recoiled to 3.6% in 2020.

China’s GDP growth slowed to a 27-year low in the second quarter. Top Asian exporters — Singapore, Japan and South Korea  — have been exhibiting a slump in exports amid trade war. Brexit issue has also been bothering the global picture. The UK is set to depart from the European Union on  Oct 31. The Office for Budget Responsibility (OBR) said a no-deal Brexit could result in a £30 billion economic hit.

ETFs to Play

Against such a baffling backdrop, seeking refuge in low-volatility products rather than sticking to highly risky options can help investors to endure the geopolitical storm. 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.

Global Min Vol iShares Edge MSCI ETF ACWV

The United States is the top holding of the fund, followed by Japan, Switzerland and Taiwan. 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 EAFE Minimum Volatility ETF EFAV

EFAV looks to replicate the performance of international equity securities that have lower absolute volatility. No single stock makes up more than 1.52% of the portfolio. Country wise, the fund appears more focused on Japan (28.4%), Switzerland (13.4%) and United Kingdom (11.8%) equities. The fund charges 20 bps in fees.

iShares MSCI Europe Minimum Volatility ETF EUMV

It tracks the MSCI Europe Minimum Volatility Index giving exposure to 172 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 term of country exposure, United Kingdom takes the largest share at 21.5%, followed by Switzerland (19.8%), France (12.7%) and Germany (11.7%).

The 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 and yields about 3.46% annually (read: Bet on Low-Beta ETFs as Trade Fears Escalate).

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