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Time to Buy Global Low-Volatility ETFs?

Sanghamitra Saha

Tensions in the U.S.-China trade relations have picked up after the Trump administration blacklisted eight more Chinese technology giants on human rights concern on Oct 7. Talks are doing rounds that the China delegation is reportedly sitting down for a meeting in Washington on Thursday only instead of Friday too as scheduled, per CNBC.

Also, the Trump administration’s decision to levy visa restrictions on Chinese government officials “connected to the mass detention of Uighurs in western China” made matters worse.

Not only in the United States, things are shaky on the global front too. The chances of Britain leaving the European Union with a deal on Oct 31 are less. That might lead to a general election which might result in a 'no deal' Brexit or “a new coalition government led by leftwinger Jeremy Corbyn that would give voters the chance to remain in the European Union.”

Apprehension of a chaos caused by the Brexit drama kept global markets edgy lately. The investing world wants Britain to be part of the European Union but is not comfortable with “Corbyn's tax and nationalization agenda,” if we go by a CNN article.

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 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 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 1.57% of the portfolio. Country wise, the fund appears more focused on Japan (30.2%), Switzerland (13.8%) and United Kingdom (11.6%) 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 1.74% of assets. In term of country exposure, United Kingdom takes the largest share at 21.5%, followed by Switzerland (20.6%), France (13%) and Germany (10.6%).

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 2.72% annually.

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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
 
Legg Mason Low Volatility High Dividend ETF (LVHD): ETF Research Reports
 
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