During a time of high volatility and uncertainty in the market, many people are looking for an investment they can count on to provide ballast to their portfolio when things get hectic.
the iShares MSCI USA Min Vol Factor ETF (NYSEMKT: USMV) is an investment that fits that description. This Investment fund (ETF) hasn’t had a losing season, to use a sports benchmark, since its inception in 2011. That means it has finished every year with a positive return since then. Let’s take a look at the iShares MSCI USA Min Vol Factor ETF to see why it has been so stable and consistent.
Low volatility by design
This ETF tracks the MSCI USA Minimum Volatility Index, hence the short name “Min Vol”. The index consists of large and mid cap stocks within the MSCI USA Index with characteristics of lower volatility relative to the market based on certain screens, weight caps and factor restrictions. Currently, the ETF has 172 stocks that meet the low volatility criteria of the large- and mid-cap universes.
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So to get an idea of what stocks qualify for this fund, the top three holdings are Kroger, Johnson and Johnsonand Berkshire Hathaway. The top 10 positions only represent around 15.7% of the portfolio, which also contributes to its lower volatility.
And for that the background was created: low volatility. The statistics confirm this since its beta is 0.75, one of the lowest among all ETFs. A beta of less than one means that this fund’s volatility is less than that of the broader market as measured by its index.
An 11-year winning streak
Low beta may sound boring, but the iShares MSCI USA Min Vol Factor ETF has proven its ability to outperform falling markets. Launched in 2011, it has posted a positive annual return every year since, including 2018 when the S&P 500 down 4.4%. In 2015, when the S&P was up just 1.4%, it returned 5.5%.
This year, the ETF is down 4% through the end of March, slightly better than the S&P 500, which is down 5%. So while it is currently in negative territory, the ETF still has nine months to keep the winning streak alive.
Over the past 10 years, the ETF has posted an average annual return of 12.5% as of February 28, which is about the same as the S&P 500. Since its inception, iShares MSCI USA Min Vol Factor has returned around 13% on an annualized basis.
The long-term returns of this ETF will not match some of the technology ETFs or growth stocks in your portfolio, and it should not be considered a replacement for them. But this investment plays an important role in a portfolio as a source of diversification that can boost your overall portfolio when the market is down. It’s also one you can count on year after year for solid, positive returns.
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David Kovaleski has no position in any of the mentioned stocks. The Motley Fool owns and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Johnson & Johnson and recommends the following options: Long $200 January 2023 Call Options on Berkshire Hathaway (B-Shares), $200 Short January 2023 Put Options on Berkshire Hathaway (B-Shares) and Options $265 short buys in January 2023 on Berkshire Hathaway (B shares). Share). The Motley Fool has a disclosure policy.