During a time of high market volatility and uncertainty, many people are looking for an investment they can count on to provide ballast for their portfolio when things are choppy.
The iShares MSCI USA Min Vol Factor ETF (USMV 0.03%) is one investment that fits that description. This exchange-traded fund (ETF) has not had a losing season -- to use a sports reference -- since its inception in 2011. That means it has finished every year with a positive return since then. Let's look at the iShares MSCI USA Min Vol Factor ETF to see why it has been so steady and consistent.
Low volatility by design
This ETF tracks the MSCI USA Minimum Volatility Index, thus the abbreviated "Min Vol" name. The index consists of large- and mid-cap stocks within the MSCI USA Index with lower volatility characteristics relative to the market based on certain screens, weighting caps, and factor constraints. Currently, the ETF holds 172 stocks that meet the low volatility criteria from the large- and mid-cap universes.
So to get a sense of what stocks qualify for this fund, the top three holdings are Kroger, Johnson & Johnson, and Berkshire Hathaway. The top 10 holdings only account for about 15.7% of the portfolio, contributing to its lower volatility as well.
And that's what the fund is built for -- low volatility. The statistics bear that out as its beta is 0.75, one of the lowest among all ETFs. A beta of less than one means the volatility of this fund is less than that of the overall market as measured by its index.
An 11-year winning streak
Low beta might sound boring, but the iShares MSCI USA Min Vol Factor ETF has proven its ability to outperform in down markets. Launched in 2011, it has posted a positive annual return every year since, including 2018 when the S&P 500 was down 4.4%. In 2015, when the S&P was up just 1.4%, it returned 5.5%.
This year, the ETF has been down about 4% through the end of March, slightly better than the S&P 500, which is down about 5%. So while it's currently in negative territory, the ETF still has nine months to keep the winning streak alive.
Over the last 10 years, the ETF has posted an average annual return of 12.5% as of Feb. 28, which is about the same as the S&P 500. Since its inception, the iShares MSCI USA Min Vol Factor has returned about 13% on an annualized basis.
The long-term returns for this ETF will not match some of the technology ETFs or growth stocks in your portfolio, and it shouldn't 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 that you can count on year after year to deliver solid, positive gains.