iShares Debuts 4 Low-Volatility ETFs

October 20, 2011

iShares addresses investor anxiety with a rollout of four low-volatility ETFs.

Blackrock’s iShares unit, the world’s biggest ETF firm, rolled out four minimum-volatility equity funds that canvass virtually the entire investment universe, in developed as well as emerging markets, giving investors a way to mitigate risks associated with investing in four broad and widely used MSCI indexes.

Products designed to manage volatility have grown in popularity in the choppy recovery since the market crash of 2008-2009. The largest by assets, the iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX), has amassed more than $1 billion. However, VXX and products like it are futures linked and highly tactical, while the iShares ETFs seek to hold stocks that steer clear of the worst volatility.

The four funds and their expense ratios are:

  • iShares MSCI USA Minimum Volatility Index Fund (NYSEArca: USMV), 0.15%
  • iShares MSCI EAFE Minimum Volatility Index Fund (NYSEArca: EFAV), 0.20%
  • iShares MSCI All Country World Minimum Volatility Index Fund (NYSEArca: ACWV), 0.35% percent
  • iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSEArca: EEMV), 0.25%

 

The four new funds use MSCI indexes that are effectively subsets of four broad-based MSCI indexes—the latter mother indexes being the basis of a number of large ETFs.

The distinction is that the minimum-volatility fund effectively screen for stocks that bounce around in price a bit less than other stocks in the broad indexes.

Those broad indexes include the MSCI USA Index; the MSCI EAFE Index focused on developed countries outside the United States and Canada; the MSCI All Country World Index that pretty much canvasses the entire investable equities universe; and the MSCI Emerging Markets Index.

Some of the popular ETFs that use those indexes include the iShares MSCI EAFE Index Fund (NYSEArca: EFA) has more than $37 billion in assets and the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) has just over $31 billion in assets, according to data compiled by IndexUniverse.

Each of the minimum-volatility ETFs applies a rules-based methodology to determine the weight of the securities based on risk, iShares said in regulatory paperwork it filed earlier this year detailing its plans to bring the new ETFs to market.

San Francisco-based iShares today also launched the iShares Emerging Markets Local Currency Bond Fund (NYSEArca: LEMB), joining a quickly growing pocket of the investment universe that is already populated by funds from WisdomTree and Van Eck Global. LEMB has an annual expense ratio of .60 percent.

 

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