Time To Buy Global Low Volatility ETFs?

Global shares skidded lately on confusion over the passing of the tax reform in the United States, rising worries over prime minister Theresa May's leadership and upheaval in the Middle East.

Signs of receding popularity of President Donald Trump flared up the possibility of a delayed tax reform last week. Democrats emerged winners in Virginia and New Jersey – a key move before the 2018 midterms. This win was viewed as an increased pressure on Republicans to pass the promised tax reforms.

The Washington Post, citing anonymous sources, reported last week that Senate Republican leaders are mulling over a one-year delay in the enactment of the corporate tax cut to conform to Senate rules, as per a source (read: Treasury ETFs in Focus on Potential Delay in Tax Reform).

However, the Senate finally passed a budget resolution that gives way to tax cuts. This pushed up the benchmark U.S. Treasury yield to 2.40% on Nov 10 from 2.33% from a day before. Plus, higher chances of a rate hike by the Fed in December contributed to the spike in yields. So, even if tax cuts are enacted soon, rising rate worries, which can cause disturbances in the market, will not leave investors.

Leadership issues are rising even across the pond. There is rising doubt over United Kingdom’s prime minister Theresa May’s ability to push through her Brexit legislation “amid a growing threat to her leadership and concerns over whether she still has the political clout to govern.” Labour and other opposition parties indicated that Theresa May doesn’t possess adequate authority over the Conservatives to ensure the bill’s passage.

In the Middle East, tensions between Iran and Saudi Arabia are rising as a missile was fired toward Riyadh lately. Plus, Saudi Arabian crown prince looked to solidify his power by ordering a crackdown with arrests of royals, ministers and investors as part of an apparent drive to end corruption (read: ETFs in Focus on Increased Tensions in Saudi Arabia).

Overall, world ETF iShares MSCI ACWI ETF ACWI lost about 0.6% in the last five days (as of Nov 10, 2017).

ETFs to Play

Against such a baffling backdrop, seeking refuges in low volatility products rather than sticking to highly risky options can help investors endure a sudden downslide in the market. These global low-volatility products could be intriguing for those who want to stay invested in equities, but like the idea of focusing on minimum volatility.

Low volatility ETFs generally tend to offer positive risk-adjusted gains, though not enormous (read: Low Volatility ETFs to Buy If North Korea Tensions Flare Up).

iShares Edge MSCI Min Vol Global ETF ACWV

This product offers exposure to global stocks that have lower volatility characteristics relative to the broader developed and emerging equity markets. American firms make up about 55% of the fund while Japan (12.9%), China (5.5%) and Switzerland (4.9%) round out the top four positions.

iShares Edge MSCI Min Vol EAFE ETF EFAV

EFAV looks to replicate the performance of international equity securities that have lower absolute volatility. Country wise, the fund appears more focused on Japan (28.7%), United Kingdom (14.1%) and Switzerland (13.2%) equities.

iShares Edge MSCI Min Vol Europe ETF EUMV

It gives exposure to European developed market equities with lower volatility characteristics relative to the broader European developed equity markets. In term of country exposure, United Kingdom takes the largest share at 25%, followed by Switzerland (18%), France (11.8%) and Germany (10.7%).

Legg Mason Low Volatility High Dividend ETF LVHD

This fund is composed of U.S. equities with a relatively high yield and low price and earnings volatility. The fund yields about 3.30% annually.

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