An ETF That Reduces Emerging Markets Volatility
When equity market volatility suddenly spiked last week, some investors probably worried that emerging markets stocks and exchange traded funds would be adversely affected. Fortunately, some ETFs give investors a lower volatility view of developing economies.
Some of those funds also come with impressive income prospects. That group includes the VictoryShares Emerging Market High Div Volatility Wtd ETF (NasdaqGM: CEY), which debuted last year.
The VictoryShares Emerging Market High Div Volatility Wtd ETF tries to reflect the performance of the CEMP Emerging Market High Dividend 100 Volatility Weighted Index.
The rules-based index begins with stocks taken from the CEMP Emerging Market 500 Volatility Weighted Index, a volatility weighted index comprised of the 500 largest emerging market companies by market capitalization with positive earnings in each of the four most recent quarters, and picks out the 100 highest dividend yielding stocks in the CEMP Emerging Market 500 Volatility Weighted Index, which are then weighted based on their daily standard deviation or volatility of daily price changes over the last 180 trading days. Stocks with lower volatility receive a higher weighting and stocks with higher volatility receive a lower weighting, according to a prospectus sheet.
The low-volatility factor investments work on the idea that they help cushion against market turns, limiting drawdowns that investors experience while providing upside potential. Consequently, the low- or min-vol strategies may produce better risk-adjusted returns over the long haul, which has been backed by extensive academic research.