Published November 01, 2012
Vanguard, the third-largest U.S. ETF issuer and largest gatherer of assets in 2012, has proven adept at entering niches of the ETF space previously dominated by rivals. From broad market funds to dividend ETFs, late entry has not hindered the Pennsylvania-based firms ascent to ETF royalty.
Still, there is one area where Vanguard currently has no offerings, but the firm could be looking to change that. That area being low volatility ETFs. In a Morningstar interview Vanguard's Chief Investment Officer-elect Tim Buckley said the firm is having a "hard look" at the minimum volatility strategy that has become wildly popular with investors.
"If you can minimize the volatility in some of these portfolios, especially in (investors') retirement years when they're drawing (their nest eggs) down, that could make a difference. That could make a big difference. So, I'd say more to come on that and definitely check back with us," Buckley told Morningstar.
Since arriving on the scene in force last year, some low volatility ETFs have proven to be prodigious gatherers of assets. The undisputed king of the low volatility ETF space is the PowerShares S&P 500 Low Volatility Portfolio (SPLV). SPLV debuted in May 2011 and now has over $2.7 billion in assets under management.
Lower volatility stocks have performed at least as well as the market over the past 50 years with reduced risk, ETF Trends reported, citing Morningstar.
While inflows to low volatility ETFs (SPLV has raked in $1.7 billion this year, ETF trends reports, citing Index Universe data) prove investors like the concept of potentially gaining solid risk-adjusted returns, any new entrant to this space faces a tough road in terms of attracting assets.
PowerShares and iShares are the brands investors are most familiar with regarding low volatility products. In addition to SPLV, PowerShares issues the PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV) and the PowerShares S&P International Developed Low Volatility Portfolio (IDLV).
A new ETF from the firm, the PowerShares S&P 500 High Dividend Portfolio (SPHD) high dividends and low volatility under one umbrella. SPHD is just two weeks old and already has $6.3 million in AUM.
iShares, the world's largest ETF sponsor, has found successful with low volatility ETFs as well. The iShares MSCI USA Minimum Volatility Index Fund (USMV) and the iShares MSCI Emerging Markets Minimum Volatility Index Fund (EEMV) are each barely more than a year old and both have well over $500 million in AUM.
Even though Vanguard faces well-established competition in the "low vol" arena, the firm has been late to the game with competing products in the past only to emerge victorious. The prime example being the Vanguard MSCI Emerging Markets ETF (VWO), which is two years younger than the rival iShares MSCI Emerging Markets Index Fund (EEM). Despite EEM's head start, VWO is about $18 billion larger in terms of assets.
For more on low volatility ETFs, click here.
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