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The Ossiam ETF FTSE 100 Minimum Variance (UKMV), the first and only low-volatility exchange-traded fund (ETF) based on the FTSE 100 index, has recorded an impressive first year on the London Stock Exchange.
Managed by smart beta specialist Ossiam, an affiliate of Paris-based Natixis Global Asset Management (NGAM), the fund has posted markedly superior risk-adjusted performance relative to the FTSE 100 since making its debut on the exchange in January 2012.
The fund is benchmarked to the FTSE 100 Minimum Variance Index, an index co-developed by Ossiam and FTSE, and is designed to deliver a return that is broadly comparable to that of the FTSE 100 but with reduced volatility.
Looking at the performance over the 12 months up to 31 January 2013, the fund delivered a return of 20.99% compared to a return of 14.79% for the FTSE 100. And, in keeping with its minimum variance objective, the fund’s volatility for this period was markedly lower: 10.43% annualised compared with 13.69% for the FTSE 100.
The FTSE 100 Minimum Variance Index is a diversified subset of FTSE 100 stocks specifically constructed so as to minimise the variance of the overall portfolio. Portfolio constituents are selected and weighted based on their forecast risk and intercorrelations to build a lower-risk portfolio, while adhering to a number of parameter constraints such as maximum single stock and sectors exposures and minimum number of constituents.
The resultant portfolio, while comprised entirely of FTSE 100 constituents, has a noticeably different sector profile. Key differences, in terms of relative weights versus the FTSE 100, include significant underweights in high beta industries such as Oil & Gas, Basic Resources and Banks; and significant overweights in Industrial Goods & Services, Retail, Utilities and Food & Beverage.
Bruno Poulin, CEO of Ossiam, commented: “We are very pleased to see that the research and hard work put into developing the FTSE 100 Minimum Variance Index in partnership with FTSE Group and Ossiam’s FTSE 100 Minimum Variance ETF have paid off for investors. They are attracted by the proposition of returns from the UK’s largest companies allied with mitigated risk. We expect to see significant growth in assets as more investors recognise the benefits of using such an approach in an uncertain economic climate.”
Terry Mellish, Head of UK and Ireland Business and global consultant relationships for NGAM UK, added: “Ossiam’s FTSE 100 Minimum Variance ETF, the first of its kind in the UK, has delivered on its initial promise of mitigating risk in volatile markets combined with upside exposure to UK large cap equities.”
The fund is physically replicated and does not undertake securities lending. It comes with an annual Total Expense ratio (TER) of 0.45%. As of 31 January 2013, the fund had £13.82 million in assets under management.