Lower Risk & Higher Returns With This ETF

October 29, 2014

A low-volatility emerging markets ETF outpaces its plain-vanilla counterpart as it marks its three-year anniversary.

Low-volatility funds are hardly new. You might even think of them as past their prime, given all the buzz about them a few years back.

Still, a low-vol ETF covering the tricky emerging market space just hit its three-year mark, and its numbers are undeniably good. Volatility is no small part of emerging markets, with huge swings in Brazil as “Exhibit A,” so the notion of taming this risk has intrinsic appeal.

The fund is the iShares MSCI Emerging Markets Minimum Volatility ETF (EEMV | B-64) which offers a low-vol take on the hugely popular iShares MSCI Emerging Markets ETF (EEM | B-97). (Nerd alert: EEMV is actually min-vol, not low vol. That means its min-vol portfolio weighs correlations while low-vol funds ignore basic portfolio math.) EEM is a perfect fund to compare with EEMV.

Here are the facts for EEMV since its launch three years ago, using EEM as a yardstick:

1) Lower Risk

EEMV delivered on its min-vol promise: Its volatility of 10.9 percent handily beat EEM’s 14.3 percent. For reference, U.S. equities, as measured by the SPDR S&P 500 ETF (SPY | A-97), had volatility for the same period of 13.1 percent—significantly higher than EEMV’s. I calculated the downside risk too—the variability of negative returns—and found similar numbers for all three funds.

2) Higher Return

EEMV’s annualized three-year return of 9.5 percent trounced EEM’s 4.8 percent.

EEMV EEM risk rtn



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