iShares launches suite of minimum volatility ETFs on the London Stock Exchange

Dec 3rd, 2012 | By | Category: Equities

iShares, the exchange-traded fund (ETF) platform of BlackRock, has announced the launch of four physically-backed ETFs based on minimum volatility indices on the London Stock Exchange (LSE).

iShares launches suite of minimum volatility ETFs on the London Stock Exchange

iShares’ new suits of minimum volatility ETFs seek to offer exposure to equity markets with reduced volatility.

The new funds provide access to a range of equity markets including Europe, the US, emerging markets and the world, while seeking to offer reduced volatility compared to standard market-capitalisation-weighted indices.

The funds’ underlying indices each reflect a managed-volatility equity strategy that employs a minimum-variance approach to achieve lower total risk, measured by standard deviation, than their parent index, while maintaining close tracking and similar characteristics.

The four funds (listed below) follow an optimised replication methodology, which helps increase liquidity and reduce implementation, maintenance and replication costs. They each come with a total expense ratio of between 0.20% and 0.40% pa.

iShares MSCI Europe Minimum Volatility ETF (MVEU)
iShares MSCI World Minimum Volatility ETF (MVOL)
iShares MSCI Emerging Markets Minimum Volatility ETF (EMMV)
iShares S&P 500 Minimum Volatility ETF (SPMV)

Investor demand for products such as these has risen since the onset of the financial crisis, during which overall equity market volatility has risen both in terms of the magnitude and the frequency of volatile episodes. Between 2007 and 2011, for example, the MSCI Europe Index saw +/- 2% daily moves more than three times a month on average, compared to the previous three years where this only happened approximately five times a year.

This heightened volatility has deterred some investors from accessing equity markets. A number of ETF providers have responded by developing smarter, more innovate ways to approach them, which is reflected in this latest launch from iShares.

Stephen Cohen, Head of iShares Investment Strategies & Insights EMEA, said: “These new funds are suitable for investors looking for a smoother ride in today’s investment world.  This new suite aims to offer an attractive investment over the longer term with the potential to provide a better trade-off between risk and return, something that simply holding cash does not do.”

He added: “iShares continues to see client demand for new and diversified sources of yield and solutions for navigating today’s markets, and our suite of minimum volatility ETFs has been designed with this in mind.  These innovative new funds provide investors with broad equity exposures, in a way that can help to reduce overall portfolio risk, without introducing significant bias by country, sector or style.”

The rollout of these products in the UK follows similar launches by iShares in the US and Canada. The company will no doubt be hoping that the London-listed products are as successful as their NYSE-listed counterparts, such as the iShares MSCI USA Minimum Volatility Index ETF (USMV) and the iShares MSCI All Country World Minimum Volatility Index ETF (ACWV), which have attracted assets of $657m and $649m, respectively, since their launch in October last year.

However, while the new iShares ETFs are the first to track their respective indices on the LSE, they are not without competition. In October, SSgA SPDR, one of iShares’ fiercest rivals, launched the SPDR S&P 500 Low Volatility ETF (USLV) on both the London Stock Exchange and the Deutsche Börse. This physically-backed fund tracks the S&P 500 Low Volatility Index, which includes 100 stocks from the S&P 500 that have had the lowest historical price volatility in the prior 252 trading days, weighted inversely proportional to their volatility. This fund is likely to produce broadly similar outcomes to iShares’ new S&P 500 Minimum Volatility offering and will provide competition.

Similarly, Ossiam, a Paris-based ETF provider, has been active in the low-volatility space for some time and manages almost $450m in minimum variance ETFs. It currently offers a range of London and European-listed products including the Ossiam ETF iStoxx Europe Minimum Variance NR (LEMV), the Ossiam ETF World Minimum Variance NR (WDMV), the Ossiam Emerging Markets Minimum Variance NR ETF (DEMV) and Ossiam ETF US Minimum Variance NR (USD) (LUMV). Likewise, these funds will offer competition to iShares’ new range.

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