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Vanguard Readies Low-Volatility Fund


Low-volatility ETFs designed to limit risk have appealed to investors who want more defensive exposure to the stock market.

Now Vanguard has filed a registration statement with the SEC to introduce Vanguard Global Minimum Volatility Fund.

The fund would have two share classes – investor shares, and so-called Admiral shares that require an investment of $50,000. It is expected to be available in the fourth quarter.

However, Vanguard has not initially filed to introduce an ETF share class of the low-volatility fund.

A company spokeswoman told Barrons.com that Vanguard intends to request the SEC’s exemptive relief to offer an active ETF, but that process, assuming it’s approved, “is likely to take at least twelve months and possibly longer.”

Vanguard’s low-volatility fund would be actively managed.

“The fund is expected to invest approximately half of its assets in stocks of U.S. companies and approximately half in stocks of foreign companies,” the company said in a press release Friday. “To mitigate currency risk and lower the volatility of the overall fund, a significant portion of the fund’s exposure to foreign currencies will be hedged to the U.S. dollar through the use of forward currency contracts.”

“The fund is designed to provide long-term investors exposure to the broad global equity market with less expected volatility,” added Vanguard Chairman and CEO Bill McNabb.

ETFs in the low-volatility category include PowerShares S&P 500 Low Volatility Portfolio (SPLV) and iShares MSCI USA Minimum Volatility ETF (USMV).

Volatility is a measure of a stock’s tendency to fluctuate in price.

Reducing volatility “has struck a chord with investors burned by two bear markets over the past 15 years, who don’t think they can stomach another one in the future,” says Jeffrey De Maso, editor and research director at the Independent Adviser for Vanguard Investors newsletter. “True to form, the financial industry, Vanguard included, is responding to this demand with the promise of performance without pain—or at least without lots of pain.”

Today there are 11 ETFs in the low-volatility space holding over $11 billion in assets, he added.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.