Morningstar: Seek Smart-Beta ETFs in Volatile Markets
- Market ups and downs have many investors feeling queasy.
- Smart-beta ETFs tend to blend both passive and active management styles.
- A new Morningstar report highlights the top-rated low-volatility equity ETFs.
Uncertainty over the tariffs President Donald Trump initially announced in April has led to market ups and downs that, in turn, have many investors feeling queasy. But there are certain exchange-traded funds that may help investors deal with that volatility better than others.
Risk-oriented, smart-beta (also called strategic-beta) funds are a good option, Valerio Baselli, senior international editor for Morningstar EMEA, said in a report published Monday.
“In times of market turmoil, strategic-beta ETFs geared toward risk reduction can provide a safety net for investors,” Baselli wrote.
What are Smart-Beta ETFs?
Smart-beta, or strategic-beta, funds aim to outperform traditional market-cap-weighted index funds by using alternative weighting schemes to construct a portfolio. The factors these funds consider can include value, momentum, quality, volatility and size.
These ETFs tend to blend both passive and active management styles, since they both track an index and use certain factors to pick securities within that index. While they have the potential for high returns since they aim to outperform market indexes, they’re also more complicated than their traditional index fund counterparts and have a more limited track record.
Low-Volatility ETFs
In his report, Baselli highlighted the top-rated, low-volatility equity ETFs for global markets, the U.S., emerging markets and Europe.
U.S. investors should note the funds are issued by BlackRock Advisors (UK) Limited:
- iShares Edge MSCI World Minimum Volatility UCITS ETF
- iShares Edge S&P 500 Minimum Volatility UCITS ETF
- iShares Edge MSCI EM Minimum Volatility UCITS ETF
- iShares Edge MSCI Europe Minimum Volatility Advanced UCITS ETF
But there are 1,139 of these ETFs traded in the U.S. markets, with total assets under management of $2.1 trillion, according to etf.com data.
U.S. investors may want to review Morningstar’s report from late 2024 on five smart-beta ETFs that got a boost from a rally in financials, as well as the firm’s recent report on how to choose the best ETFs for your portfolio.
