Worried about emerging markets? Consider the low volatility factor.



Worried about emerging markets? Consider the low volatility factor.

Nick KalivasTime to learn: 2 min

Emerging markets (EM) have been turbulent all through 2018 as a consequence of US-China commerce tensions, the deleveraging of the Chinese financial system, Brazilian political uncertainty, Middle Eastern battle and Russian sanctions. The latest plunge in the Turkish lira has solely added to traders’ jitters. As EM shares fall, many traders could also be trying to US shares as a hedge towards danger. Based on previous intervals of EM turbulence, I consider US low volatility shares particularly warrant a better look.

Low volatility shares have usually outperformed in occasions of EM stress

The desk under highlights materials sell-offs (larger than a 15% loss from peak to trough) in the MSCI Emerging Markets Index courting again to 2011. In every case, the S&P 500 Index outperformed the EM index, however nonetheless generated detrimental returns in 4 of the 5 intervals. In distinction, the S&P 500 Low Volatility Index generated optimistic returns in 4 of the 5 intervals.


*Represents most up-to-date information

Source: Bloomberg, L.P., as of Aug. 15, 2018. Based on weekly closes. Past efficiency isn’t indicative of future outcomes. An funding can’t be made instantly in an index.

Key takeaways

An element is a quantifiable attribute of a safety that to a big extent explains its risk-return profile. Targeting these underlying drivers of return might present a extra finely tuned, systematic method to portfolio building. The low volatility issue measures the magnitude of up and down swings in a inventory’s trailing 12-month worth returns, and these methods search to spend money on shares with a historical past of offering a smoother trip.

During occasions when emerging market shares have declined at the least 15%, US low volatility shares have usually outperformed the broader US market (as outlined by the S&P 500 Index). The potential for US low volatility shares to assist cut back draw back danger could also be enticing in an atmosphere crammed with EM danger, particularly given a strong US financial system that’s benefiting from deregulation and tax cuts.

Learn more about strategies that target the low volatility factor.

Important info

Blog header picture: donatphotography/Shutterstock.com

The MSCI Emerging Markets Index is an unmanaged index thought-about consultant of shares of growing international locations.

The S&P 500® Index is an unmanaged index thought-about consultant of the US inventory market.

The S&P 500® Low Volatility Index consists of the 100 shares from the S&P 500® Index with the lowest realized volatility over the previous 12 months.

Factor investing is an funding technique wherein securities are chosen primarily based on sure traits and attributes. Factor-based methods make use of rewarded danger elements in an try and outperform market-cap-weighted indexes, cut back portfolio danger, or each.

Low volatility can’t be assured.

The dangers of investing in securities of overseas issuers, together with emerging market issuers, can embrace fluctuations in foreign currency echange, political and financial instability, and overseas taxation points.

Nick Kalivas

Senior Equity Product Strategist

Nick Kalivas is a Senior Equity Product Strategist representing Invesco’s exchange-traded funds (ETFs). In this position, Mr. Kalivas works on researching, growing product-specific methods and creating thought management to place and promote the sensible beta fairness line up.

Prior to becoming a member of Invesco, Mr. Kalivas spent the majority of his profession in the futures business, delivering analysis, technique and market intelligence to institutional and excessive web price shoppers centered in the fairness and rate of interest markets. He was a featured contributor for the Chicago Mercantile Exchange, and supplied analysis companies to a New York-based international macro commodity buying and selling advisor the place he provided perception on equities, mounted revenue, overseas change and commodities. Nick has been quoted in the Wall Street Journal, Financial Times, Reuters, New York Times and by the Associated Press, and has made quite a few appearances on CNBC and Bloomberg.

Mr. Kalivas has a BBA in accounting and finance from the University of Wisconsin – Madison and an MBA from the University of Chicago Booth School of Business with concentrations in economics, finance, and statistics. He holds the Series 7 and Series 63 registrations.

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