State Street Global Advisors launches SPDR STOXX Global Low Volatility UCITS ETF
State Street Global Advisors, the asset management business of State Street Corporation (NYSE: STT), has launched the SPDR STOXX Global Low Volatility UCITS ETF.
The fund will track the STOXX Global Low Risk Weighted Diversified 200 Index, which represents the least volatile companies from the STOXX Global 1800 Index after accounting for adequate diversification. This benchmark provides a broad yet liquid representation of the world’s most developed markets with a fixed number of 1,800 components represented by the STOXX Europe 600 Index, the STOXX North America 600 Index and the STOXX Asia/Pacific 600 Index.
The investment objective of the new ETF is to track the performance of global equity securities in developed markets which historically have exhibited low volatility characteristics. The 200 stocks selected from the STOXX Global 1800 Index, the parent index, had the lowest historical volatility over the past year. The Index has a maximum stock weighting at the lower of 2 per cent and 25x its weight in the parent index, and a maximum industry weighting of 25 per cent. Country weights greater than 2.5 per cent in the parent index can deviate by +/- 5 per cent, while countries less than 2.5 per cent are capped at 3 times their weight in the parent index. It is rebalanced quarterly.
SPDR also offers ETFs that track the S&P 500 Low Volatility Index and EURO STOXX Low Risk Weighted 100 Index, which have demonstrated better risk-adjusted returns versus the benchmarks they select their constituent stocks from, in part by offering lower historical drawdowns.
SPDR’s Low Volatility ETFs are relatively less constrained than Minimum Volatility/Variance strategies, enabling them to be more flexible in decreasing volatility factor exposure. They also rebalance more frequently (quarterly) compared to Minimum Volatility/Variance strategies (semi-annual), which makes them more responsive to changing market conditions.
“Market volatility has become a big challenge for investors, especially during the current pandemic. Our family of smart beta low volatility ETFs, which follow simple, rules based methodologies, allow investors to modify their portfolios to better reflect their ongoing return-risk appetite in their strategic allocation,” says Matteo Andreetto, Head of SPDR ETF Business, EMEA. “They can build defensiveness into portfolios while maintaining a degree of upside potential, by allocating part of the core allocation into low volatility strategies.”
Ryan Reardon, ETF Strategist, SPDR, adds: “While economic data has recovered from the lows experienced earlier this year, the persistent uncertainty in equity prices makes low volatility ETFs increasingly relevant. They have the potential to outperform the broader market in uncertain times, providing significant protection to portfolios. They select stocks that have seen the lowest levels of price movement; which typically focus more on defensive sectors.”
The SPDR STOXX Global Low Volatility UCITS ETF has a TER of 0.30 percent. It has a primary listing on Euronext, Amsterdam on 24th August 2020, and a secondary listing on the London Stock Exchange on 25th August 2020.