Let’s analyze one of the best low-volatility ETFs on the American stock market. We’ll look at the pros and cons in detail.
In the US equity investment landscape, one product emerges as an innovative solution for investors seeking to combine the pursuit of low volatility with a commitment to responsible investment practices.
This fund, launched on April 24, 2020, stands out for its investment strategy that focuses on minimizing the volatility of US stocks, filtered through rigorous environmental, social, and governance (ESG) criteria. The peculiarity of this ETF lies in its ability to replicate the US ESG Minimum Variance index, which in turn aims to reflect the performance of an optimized portfolio of shares selected not only for their financial characteristics but also for their commitment to sustainability.
Ossiam US Minimum Variance ESG UCITS ETF
With assets under management of 50 million Euro and a total expense ratio (TER) of 0.65% per annum, the Ossiam US Minimum Variance ESG UCITS ETF is positioned as a medium-sized investment option in the context of sustainable ETFs. Its full physical replication strategy, which involves purchasing all components of the benchmark index, ensures high fidelity in reproducing the performance of the US ESG Minimum Variance Index. This approach contrasts with synthetic replication methods, offering greater transparency and direct alignment with the performance of the selected companies. Additionally, the reinvested dividend accumulation policy contributes to compound capital growth over time, making this ETF particularly attractive to long-term investors.
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Benchmark Analysis
The benchmark index, the Solactive US Large Cap, provides a basis for comparison to evaluate the ETF’s performance. However, the Ossiam US Minimum Variance ESG UCITS ETF does more than passively track this index; rather, it applies an ESG filter to select companies and then uses a volatility minimization algorithm to weight the stocks. This selective process leads to significant differences in the composition of the portfolio compared to the benchmark index. While the Solactive US Large Cap may include companies based solely on their market capitalization, without considering ESG factors or volatility, the Ossiam ETF stands out for its commitment to only include companies that meet rigorous ESG criteria and that contribute to an overall lower risk profile.
The fundamental difference between the ETF approach and that of the benchmark index lies in the methodology of stock selection and weighting. While the Solactive index focuses on representing the broad US stock market, the ETF aims to optimize the risk-reward balance by minimizing portfolio volatility. This not only reduces exposure to unwanted market fluctuations but also aligns with the goal of investors who are aware of the importance of sustainable business practices. ESG selection, in particular, introduces an additional level of screening that can exclude companies with solid financial performance but less sustainable practices, thus highlighting a divergence between the pure search for returns and the integration of ethical and sustainable considerations into investing.
Performance and returns
The Ossiam US Minimum Variance ESG UCITS ETF 1A (EUR) has shown impressive performance since it was launched, with its value increasing significantly over the years. Its volatility minimization strategy, combined with careful ESG-based stock selection, has led to solid returns, especially in turbulent market environments. Analyzing annualized returns, we see that the ETF has weathered adverse market phases better than many of its peers who follow a more traditional approach, highlighting the resilience of strategies that incorporate sustainability considerations.
Portfolio Composition
The portfolio composition of the Ossiam US Minimum Variance ESG UCITS ETF reflects its unique investment strategy. With the top 10 holdings representing approximately 30% of the portfolio, the ETF demonstrates a high concentration in stocks believed to offer the best balance of return and stability, according to ESG criteria and of minimizing volatility. This concentration, however, should not be seen as an increase in risk, but rather as the result of a selection process aimed at identifying companies with strong financial foundations and robust ESG commitments.
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Risk management
Risk management is a key pillar of the Ossiam US Minimum Variance ESG UCITS ETF strategy. The ETF’s annual volatility, lower than many traditional market indexes, is a testament to the effectiveness of its risk minimization strategy. This is especially evident when comparing the ETF’s volatility data and maximum drawdowns to those of the Solactive US Large Cap Index. While the index may exhibit periods of high performance, these are often accompanied by higher volatility and lower drawdowns. significant, reflecting greater exposure to market risk.
The ETF’s approach, focused on reducing volatility through ESG stock selection and optimized weighting, not only limits losses during market downturns but also contributes to more predictable capital growth and sustainability over time. This strategy is particularly advantageous for investors who prioritize stability and risk reduction in their portfolio, without sacrificing growth opportunities.
Costs and Expenses
The active management and selective approach of the Ossiam US Minimum Variance ESG UCITS ETF entails costs, reflected in the synthetic expense indicator (TER) of 0.65% per annum. This level of expenses is comparable to other ETFs that employ similar volatility minimization and ESG integration strategies but may be higher than ETFs that track traditional indices with a passive management approach. However, it is important to evaluate the TER in the context of the potential benefits in terms of risk reduction and alignment with sustainability objectives.
Advantages and disadvantages
The Ossiam US Minimum Variance ESG UCITS ETF offers several benefits, including the reduction of portfolio volatility and the integration of ESG criteria, which can attract investors oriented towards sustainability and stability of returns. Its targeted investment strategy and rigorous stock selection provide a unique opportunity to participate in the growth of sustainable businesses with a low-risk profile.
However, there are also disadvantages to consider. The volatility minimization strategy and selective ESG approach may limit exposure to certain sectors or companies which, despite their less sustainable practices, may offer significant growth opportunities. Furthermore, the relatively high TER, when compared to more traditional ETFs, could erode some returns over the long term.
| Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings. |
Original article published on Money.it Italy 2024-02-25 11:58:00. Original title: Un ETF per investire nell’azionario americano a bassa volatilità
