Scalper1 News
The global stock market has been on a wild ride over the past couple of weeks, with a wave of selling seen in recent sessions making matters worse. China played the role of the biggest culprit in roiling the market with the devaluation of its currency on August 11, and dovish Fed minutes last week did the rest of the damage. Worries about prolonged weakness in China accelerated on Friday on the country’s factory activity data, which contracted at the fastest pace in over six years in August. Additionally, Europe is struggling with slower growth, the Japanese economy has lost its momentum and many emerging economies are experiencing a slowdown despite rounds of monetary easing. Added to the woes is the slump in commodities, especially the resumption of the oil price slide, which is once again threatening global growth and deflationary pressure. Notably, U.S. crude has dropped to below $39 per barrel, its lowest price since the financial crisis six years ago. Such market gyrations have left investors nervous about the safety of their portfolios. However, the People’s Bank of China (PBOC), in a surprise move today, intervened to boost the sagging domestic economy. For the fifth time in nine months, it has cut its interest rates by 25 bps to 4.6%. The deposit rate has also been cut by 25 bps to 1.75%, while the reserve ratio has been slashed by 50 bps to 18%. Though the move has injected fresh optimism into the global markets, with most benchmarks in green, the gain seems a short-lived one. Most of the analysts believe that the country will continue to face a long period of uncertainty that would result in more volatility and hurt the global economy. Given the weak fundamentals, the outlook for stocks still appears cloudy, and the markets are expected to remain volatile in the coming days. As such, investors should consider low-volatility (risk) products in order to protect themselves from huge losses. Why Low Volatility? Low-volatility products generate impressive returns or often outperform in an uncertain or a crumbling market, while providing significant protection to one’s portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these funds contain stocks of defensive sectors, which usually have a higher distribution yield than the broader markets. Below, we have highlighted five low-volatility ETFs that investors should consider if the stock market continues to experience volatility. These funds appear safe in the current market turbulence and tend to reduce risk, while generating decent returns: iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) This is the largest and most popular ETF in the low-volatility space, with AUM of $5.8 billion and average daily volume of 1.1 million shares. It offers exposure to 163 U.S. stocks having lower-volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. The fund’s expense ratio came in at 0.15%. The fund is well spread across a number of components, with none holding more than 1.68% share. From a sector look, healthcare, financials, information technology, and consumer staples occupy the top positions, each with double-digit exposure. The ETF lost nearly 7% over the past 10 days. PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) This ETF provides exposure to the stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index, and holds 105 securities in its basket. Like USMV, the fund is widely spread across a number of securities, and none of these holds more than 1.25% of assets. However, the product is tilted toward financials at 35.1%, while consumer staples, industrials and healthcare round off the top five. SPLV has amassed $5 billion in its asset base and trades in heavy volume of around 1.3 million shares a day, on average. The fund charges 25 bps in annual fees and lost 7.6% in the past 10 days. iShares MSCI All Country World Minimum Volatility ETF (NYSEARCA: ACWV ) This fund tracks the MSCI All Country World Minimum Volatility Index. Though the ETF provides exposure to low-volatility stocks across the globe, the U.S. accounts for more than half of the asset base. Apart from this, Japan is the only country with a double-digit allocation. In total, the fund holds 359 stocks, with each accounting for no more than 1.41% of assets. Financials, healthcare, and consumer staples are the top three sectors, each with double-digit allocation. The product has a managed asset base of $2.2 billion, while it trades in good volume of more than 202,000 shares a day. It charges 20 bps in annual fees, and is down 8% in the same period. iShares MSCI EAFE Minimum Volatility ETF (NYSEARCA: EFAV ) This fund targets the low-volatility stocks of the developed equity markets, excluding the U.S. and Canada. It follows the MSCI EAFE Minimum Volatility (USD) Index, charging investors 20 bps in annual fees. Holding 206 securities, the fund is highly diversified, with none making for more than 1.66% share. However, it is slightly tilted toward financials at 21.1%, closely followed by healthcare (16.1), consumer staples (16.0%) and industrials (11.1%). In terms of country profile, Japan and United Kingdom take the top two spots at 28.7% and 22.6%, respectively, followed by Switzerland (11.2%). EFAV has AUM of $3 billion and trades in good volume of 372,000 shares a day, on average. The ETF was down about 9% over the past 10 days. iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEARCA: EEMV ) For investors seeking exposure to the emerging markets, EEMV could be an intriguing pick. The fund follows the MSCI Emerging Markets Minimum Volatility Index and is one of the largest and popular ETFs in this space, with AUM of over $2.5 billion and average daily volume of around 441,000 shares. It charges 25 bps in annual fees and expenses. In total, the fund holds 258 stocks in its basket, with each accounting for less than 1.7% share. It provides exposure to a number of emerging countries, with China, Taiwan and South Korea as the top three holdings. However, the fund has a slight tilt toward financials with 28.5% share, while consumer staples, telecommunication services and information technology round off the next three spots. The fund shed 13.8% in the same period. Bottom Line Though these products have been on a downslide, the losses are much lower than those of the broader market funds. This is especially true given the losses of 9.8% for the U.S. fund (NYSEARCA: SPY ), 11.2% for the global fund (NASDAQ: ACWI ), 11.5% for the developed markets fund (NYSEARCA: EFA ) and 15.2% for the emerging markets fund (NYSEARCA: EEM ). As a result, investing in low-volatility ETFs seems a good strategy at present, given the China turmoil and global growth fears. Original Post Scalper1 News
Scalper1 News