USMV: A Strong Performer with Low Risk



Low-risk, high return

The iShares MSCI USA Minimum Volatility ETF (USMV) portfolio broadly includes stocks that have less volatility in stock price movement. Stocks that have low volatility don’t provide ample opportunity for investors achieve big returns from the market. Despite having a low-risk approach, USMV has performed strongly over the years, thanks to its choice of stocks and indexing method. USMV’s lifetime return since inception on October 20, 2011, is 15.71%. USMV can be considered as a smart beta fund, as its index, the MSCI USA Minimum Volatility Index, modifies the traditional S&P 500 index to derive its components.

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Flat performer

The annual total return of USMV is 4.4% for the current year. Due to the current recessionary trend in the world economy, USMV has fallen 2.2% since January 1, 2015. Its top stocks, such as McDonald’s (MCD), Verizon Communications (VZ), AutoZone (AZO), General Mills (GIS), and PepsiCo (PEP), have performed similarly to the overall fund. MCD, VZ, and AZO have fallen 2.32%, 3.87%, and 2.88%, respectively, in the period of August-September 2015.

Equal-weighted approach

USMV is currently trading at $39.68. Its strategy of selecting minimum volatility stocks may help in reducing losses during declining markets while still allowing for gains during rising markets. Currently, it manages a total number of 163 securities, 98% of which are issued in the United States. Due to its equal-weighted approach, its top ten holdings constitute only about 14.51% of its total net assets—lower than the smart beta industry average of 23%.

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


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