Why Didn't Smart Beta ETFs Protect Against Volatility?

Historically, defensive strategies have offered protection during periods of increased market uncertainty. This year, however, this hasn’t been the case

Monika Dutt 1 June, 2018 | 7:46AM

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In 2018, volatility made a surprise comeback. After being flat for most of 2017, the VIX Index, Wall Street’s barometer for volatility, spiked at the beginning of February to reach its highest level in two years. Volatility has mostly declined since then, but with central banks applying the brakes, investors are bracing themselves for a new era of increased volatility.

Historically, defensive strategies such as dividend exchange-traded funds have offered downside protection during periods of increased market uncertainty. So far this year, however, this hasn’t been the case. From January to April, most US dividend ETFs, including Morningstar Medallists – Gold, Silver and Bronze rated funds – underperformed the S&P 500.

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About Author

Monika Dutt  is a Passive Strategies Research Analyst for Morningstar Europe

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