A Structural Overview of USMV



Minimum volatility

The iShares MSCI USA Minimum Volatility ETF (USMV) seeks to match the performance of the MSCI USA Minimum Volatility Index. The index selects only those stocks that are issued in the United States and, in the aggregate, have low volatility characteristics in the broader US equity market. The stock selection process aims to reduce the overall risk of the portfolio by adding stocks that have low volatility. USMV in general invests around 90% of its net assets in the components of the index, which are heavily invested in the healthcare, financial, and information technology sectors.

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Top five holdings

The top five holdings of USMV are AT&T (T), McDonald’s (MCD), Verizon Communications (VZ), Public Storage REIT (PSA), and AutoZone (AZO). The top five holdings in total represent 7.55% of the ETF’s total net assets. As of September 13, 2015, USMV managed total net assets of $5.75 billion, with an expense ratio of 0.15%, which is much less than that of peers.

Indexing approach

One of the main reasons for USMV having such a low expense ratio is its indexing approach. Unlike many of its peers, USMV doesn’t aim to beat or outperform its index. It merely seeks to achieve the same result as that of its index. However, this approach affects the return potential of the ETF and reduces its overall marketable risk. Indexing seeks to achieve lower costs and better after-tax performance by keeping portfolio turnover low in comparison to that of actively managed investment companies.

In the next part of the series, we will analyze the return performance of USMV.


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