Low Volatility Factor ETFs
We continue our introduction to (smart) factor ETFs. In this newsletter, we will discuss low volatility factor.
Low volatility stocks
Low volatility stock ETFs came out way before other ‘new’ factor ETFs including momentum and quality. In fact, these ETFs were introduced just after the 2008-2009 financial crisis bear market. Investors, fresh out of a violent market, were looking for something more stable. The so called low volatility factor and its ETFs were thus more welcome at that time.
Investors usually make a mistake by simply interpreting this factor as a set of stocks with low(est) volatility. This is actually inaccurate. For example, MSCI defines its minimum volatility factor portfolio of stocks as follows:
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