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Are minimum volatility funds like bowling with bumpers?



“Minimum volatility” is often misunderstood as an investment that’s only useful during volatile markets, but as iShares Due Diligence team member Daniel Prince is here to point out, there’s more to the story when it comes to the benefits of this strategy.

A few weeks ago, I was sitting on an industry panel with a financial advisor who was talking about his client experiences over the last couple of years.  He mentioned that market volatility has driven many of his clients away from investing in the equity markets, but that minimum volatility ETFs (such as the iShares MSCI USA Minimum Volatility ETF – USMV) have provided them with a way to dip a toe back in the markets without taking on an uncomfortable amount of risk.  The advisor compared these funds to “bowling with bumpers.”

Market Realist – The graph above shows the price performance of the iShares MSCI USA minimum volatility ETF (USMV) since October 2011. The fund has returned 47.3% or close to 14% compounded annually over the last three years.

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The main purpose of the fund, as its name suggests, is to protect its investors from excess volatility (VXX)(XIV). Over the years, global equities (QWLD)—especially emerging markets (EEM)—have exposed investors to a lot of volatility. This much volatility may not be acceptable to some of risk-averse investors. Also, recent market volatility in the U.S. could have prompted some investors to consider less risky options, like minimum volatility funds.


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