Last Updated: 7 May 2021
Assets in minimum volatility exchange traded funds (ETFs) have more than doubled since the end of 2012 as retail investors return to equity markets and look for a smooth ride in.
Assets rose 118 percent in the first seven months of this year to $1.297 billion (€972 million), from $594 million in December last year. Data from ETFGI revealed that inflows year-to-date into sector peaked at $175 million in July, with total inflows this year-to-date reaching $617 million.
Isabelle Bourcier, head of business development at Ossiam, said retail investors were looking for a smoother ride as they returned to equity markets. In Europe, minimum volatility/variance strategies have gathered assets from professional investors looking to use these ETFs to minimise drawdowns and reduce volatility.
‘This trend really picked up since the beginning of 2012, when people realised what happened in the Greek debt and European crisis,’ she said. ‘As we are living in a world where markets can move sideways very quickly, it’s very important for their portfolios to limit drawdown and volatility of the whole portfolio. In Europe we are one year behind this trend in the US.’
The iShares retail wrap platform also saw asset pick-up surpassing £1 billion (€1.17 billion) between April and June, with the majority of flows going into minimum volatility ETFs and corporate bond ETFs. The iShares MSCI World Minimum Volatility UCITS ETF saw inflows of around £2.5m on platforms during the second quarter this year.
Pollyanna Harper, head of intermediary sales UK at iShares said in a statement: “As we move through the year we’re encouraged to see the increased use of ETFs by advisers on UK platforms.”
While the second quarter has seen a notable pick-up the move indicates a broader shift of investors into these so-called ‘smart beta’ ETFs, which provide exposure to low and minimum volatility indices.
Steffen Scheuble, chief executive officer at Solactive AG, agreed the trend of minimum volatility ETFs in Europe was gaining traction.
‘It started with PowerShares launch of the S&P low volatility ETF and over the last 18-24 months it has definitely become a trend, at least in the US,’ he said. ‘It’s just started in Europe as everyone is talking about smart beta.’