What is a Minimum Volatility ETF?

From the launch of the first minimum volatility ETF by Amundi in 2009, the total number of products has mushroomed to almost 70 globally

Dimitar Boyadzhiev 7 February, 2017 | 10:00AM
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The popularity of strategic-beta ETFs has risen sharply over the past few years. One of the fastest growing segments are those exchange traded funds which aim to reduce risk within an equity portfolio; called low-volatility and min-volatility funds. From the launch of the first minimum volatility ETF by Amundi in 2009, the total number of products has mushroomed to almost 70 globally, according to Morningstar’s classification, amassing nearly $45 billion of assets under management.

In November, Morningstar unveiled Analyst Ratings for over 250 ETFs globally, including some of the largest risk-reducing ETFs. Of these, thirteen have been rated either Silver or Bronze.

The Merits of Medalist Risk-Reducing Equity ETFs

Most of the ETFs track indices belonging to the MSCI Minimum Volatility index family. Each MSCI Min Vol index aims to construct the least volatile portfolio possible with stocks from the parent index, under a set of constraints to ensure diversification. Because stocks should have the least level of correlation between each other, the strategy doesn’t just target the least-volatile stocks. The portfolio may also comprise average- to high-volatility stocks.

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Dimitar Boyadzhiev  is a Passive Strategies Research Analyst for Morningstar

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