ETF Of The Week: This Min Vol Fund On A Roll

August 09, 2019

Investors are on edge.

Spiking market volatility, doom-and-gloom global economic forecasts and recessionary fears have left investors jittery and seeking a smoother ride.

That has benefited the $31 billion iShares Edge MSCI Min Vol U.S.A. ETF (USMV), which has brought in $8.3 billion in new net investment assets so far in 2019, second only to the Vanguard S&P 500 ETF (VOO) (read: "Fastest Growing ETFs Of The Year").

USMV's strong performance has helped pull in assets too. This minimum volatility fund has risen 17.7% year to date, compared with VOO's 14.7% rise, proving that taking a low-vol approach doesn't always mean sacrificing return (read: "Why Low Vol ETFs See Big Demand").

 

Source: StockCharts.com; data as of Aug. 8, 2019

 

Inside USMV's Portfolio

USMV is one of nine minimum volatility ETFs under the iShares "Edge" line, an $82 billion suite of single- and multifactor funds that span the strategic gamut. The fund is by far the largest ETF in the complex.

Using a rules-based approach to select and weight securities, USMV aims to provide exposure to large and midcap U.S. stocks via "a portfolio of lowest absolute volatility," according to the fund's prospectus. The fund's index is run through a proprietary optimization tool that organizes stocks according to their projected "riskiness," while implementing weighting, sector and factor constraints.

Ultimately, the goal is to provide marketlike exposure while keeping volatility as low as possible—something it does fairly well, as measured by our MSCI Factor Box tool (available on USMV's fund report):

 

 

Head To Head Against LGLV

Notably, USMV isn't the best-performing low volatility ETF to cover U.S. large caps year to date. That honor goes to its smaller rival, the $683 million SPDR SSGA U.S. Large Cap Low Volatility Index ETF (LGLV). State Street's fund also happens to be 3 basis points cheaper than USMV, too. (USMV costs 0.15%.)

Other differences are present. USMV extends farther down into the size spectrum than LGLV, including some midcap stocks in its basket; the ETF holds almost twice as many names as LGLV.

Meanwhile, LGLV's construction process specifically screens out some other competing factors, like momentum, a step that isn't specifically mentioned in USMV's literature.

Still, despite strong year-to-date growth for LGLV (the fund has brought in $464 million in new net assets), USMV remains the clear favorite among investors.

The fund's robust liquidity also makes it a favorite among short-term traders. USMV trades a whopping $253 million daily, at just a 0.02% spread.

Contact Lara Crigger at [email protected]

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