SSgA launches low volatility Euro Stoxx ETF

Mar 30th, 2014 | By | Category: Equities

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State Street Global Advisors (SSgA) has expanded its line-up of low volatility exchange-traded funds with the launch of the SPDR Euro Stoxx Low Volatility UCITS ETF (ZPRL) on the Deutsche Börse.

SSgA launches low volatility Euro Stoxx ETF

Alexis Marinof, head of SPDR ETFs EMEA at SSgA.

The new ETF tracks the Euro Stoxx Low Risk Weighted 100 Index, an alternatively weighted index derived from the broad market Euro Stoxx Index of Eurozone stocks.

The index includes the 100 stocks from the parent Euro Stoxx Index which have the lowest historical twelve month volatility. The index is weighted inversely to volatility, meaning the lower a component’s twelve month volatility is, the higher is its weight in the index.

The maximum component weight is capped at ten percent to prevent the index from being dominated by single companies.

Alexis Marinof, head of SPDR ETFs EMEA at SSgA, commented: “This latest addition to SPDR ETFs capital preserving low-volatility range will give our clients access to stocks with low historic exposure to systematic risk. This simple low volatility weighting method has resonated well with asset managers and has proven to be an effective way of limiting downside losses.”

Investors are increasingly adopting alternatively weighted products, a genre also known as “smart beta”, to access less risky and less volatile segments of the equity markets. Low volatility has become one of the most followed smart beta strategies as stocks with lower volatility have tended to produce greater risk-adjusted returns over time.

The appeal of low volatility stocks has coincided with an increase in so-called outcome-oriented investing, where the emphasis has shifted from targeting relative outperformance towards creating portfolios that have a higher likelihood of meeting investors’ future needs. For many investors, low volatility equities have proved to be part of the solution as they seek to offer an attractive combination of upside participation and potential downside protection.

Eleanor Hope-Bell, head of SPDR ETFs UK at SSgA, added: “Investors are looking at ways to limit downside losses in volatile markets. Lower volatility equity investing appeals to those who are less concerned about short-term tracking error relative to the broad market and more focused on lower risk and drawdown characteristics.”

Hartmut Graf, chief executive officer of Stoxx, said: “The Euro Stoxx Low Risk Weighted 100 Index singles out those 100 stocks in the Euro Stoxx Index which show the lowest volatility over the past year, thus offering market participants Eurozone exposure with the least possible portfolio volatility through a transparent and easily understandable index concept.”

The new fund has an expense ratio of 0.30% and is SSgA’s 56th SPDR ETF in Europe. Globally, the provider offers 195 ETFs, totalling more than $400 billion assets.

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