The BNP Paribas Equity Low Vol US Index delivered returns of 18.7% in the 12 months to September 19, versus a 9.2% gain in the benchmark S&P 500 Index over the same period.
The BNP Paribas smart beta index, which is listed on Quantilia’s data and portfolio management platform for exchange-traded and unlisted quant indices, provides exposure to a basket of US stocks that have shown low historical volatility. The index is composed of 53 underlying stocks, with the highest individual weighting currently at 2.03%.
Constituents in the index include pharmaceutical and consumer goods firm Johnson & Johnson, energy stock Chevron Corporation, The Coca-Cola Company, and Verizon Communications.
Within the rapidly-expanding smart beta index market, low volatility has been the fastest growing factor. Indices with a tilt towards low-volatility stocks are popular because they can offer downside protection and better risk-adjusted returns, especially during times of market uncertainty and high volatility.
World markets are gripped in a period of low returns and heightened volatility. As such, dividend-focused smart beta indices are garnering the attention of investors in search of yield, while low-volatility indices are also in favour.
Quantilia’s non-investable Beta Equity Yield US benchmark, which is inverse-volatility weighted, returned 16.3% in the year to September 19.
Although low-volatility funds have attracted relatively large inflows of capital, many in the industry believe the market is far from being saturated.
Flows into minimum-volatility strategies account for just four basis points of the underlying market value of the stocks they hold, FA magazine quoted Holly Framsted of BlackRock’s iShares smart beta team as saying last week.
Other low-volatility indices listed on the Quantilia platform include the PowerShares S&P MidCap Low Volatility Portfolio (which appreciated by 19.2% in the year to September 19), the SPDR Russell 1000 Low Volatility ETF (15% gain), and BlackRock’s iShares Edge MSCI Min Vol USA ETF (+15.1%), among others.
To find listed and unlisted minimum-volatility strategies on the Quantilia platform, investors can filter their searches by target factor (risk weighted), index provider, asset class, and realised volatility, among other screening tools.
Quantilia is the first data and portfolio management platform dedicated to quant, or factor-based, investments, including smart beta and risk premia indices. The site includes OTC-traded indices and caters mainly to institutional investors.
