Defensive strategy number 2: Minimum volatility


Nov. 21 2019, Updated 5:40 p.m. ET

2. Don’t focus on sectors, think about strategy. Rather than overpay for a particular sector or stock, I would prefer employing defensive strategies, like minimum volatility. For example, the 30-day volatility on the iShares MSCI ACWI fund (ACWI) is more than 10%. The volatility on the corresponding minimum-volatility strategy, the iShares MSCI Global Minimum Volatility fund (ACWV), is under 7.5%. In addition, historically the minimum volatility approach has delivered better risk-adjusted returns over the long term.

Market Realist – The graph above shows the 30-day volatility (VXX) of iShares MSCI ACWI fund (ACWI) and the iShares MSCI Global Minimum Volatility fund (ACWV). The 30-day volatility for the minimum volatility fund stands at 7.4% compared to 10.5% for the iShares MSCI ACWI fund.

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For investors who believe that stocks (SPY) (IVV) are headed downward and who also want access to global equities (QWLD), the iShares MSCI Global Minimum Volatility fund (ACWV) is the way to go. This fund give you diversification benefits by exposing you to representative stocks from all over the world. At the same time, it shields you from excessive volatility.

Read the next article in this series to find out about defensive strategies in the fixed income sector.


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