28 KIPLINGER’S PERSONAL FINANCE^ 10/2019INVESTING
ISTOCKPHOTO.COMINVESCO S&P INTERNATIONAL
DEVELOPED LOW VOLATILITY ETF
(SYMBOL IDLV). This ETF of-
fers a pure approach to low-
volatility investing. It tracks
an index of the 200 least-
volatile large- and midsize-
company stocks in a subset
of a Standard & Poor’s
global index that excludes
the U.S. and emerging coun-
tries. Stocks with the lowest
volatility over the past 12
months receive the most
weight in the index, which
is rebalanced four times
a year. It’s built “for inves-
tors who want to dial down
risk,” says Nick Kalivas, a
specialist in stock ETF
strategies at Invesco.
The ETF has delivered on
that front and more. Over
the past five years, it out-
paced 93% of its peers—
funds that invest in large,
foreign firms with both
growth and value traits—FOREIGN STOCKS HAVE TAKEN
investors on a harrowing
ride in recent years. That
has left many investors be-
lieving that the risk in inter-
national markets outweighs
the reward. But a growing
number of funds that focus
on low-volatility stocks of-
fer wary shareholders a low-
risk way to approach these
uncertain markets.
Chances are you’re light
on international stocks,
given the long bull market
in U.S. stocks. The average
American stock portfolio
holds 30% in foreign stocks,
says Fran Kinniry, head
of Vanguard’s investment
strategy group. But interna-
tional firms make up half
of the world’s total market
value. And, Kinniry says,
many investors don’t own
any international stocks.
“We’d rather see more of
those investors put their
toe in the water and boost
their foreign stock exposure
to 10% to 20% than debate
whether 30%, 40% or 50%
is better,” he says.
Low-volatility funds offer
a smoother path to interna-tional markets. “Smoothing
the ride helps investors stay
invested longer and stay
true to their goals,” says
Holly Framsted, head of
smart-beta ETFs at Black-
Rock’s iShares.
The benefits of low-
volatility investing came
to light decades ago. Re-
searchers found that the
traditional thinking—that
the more risk you take on,
the bigger the reward—
didn’t hold true when it
came to volatility. In fact,
high-volatility stocks lagged
the market over time, and
low-volatility stocks—
deemed less risky because
they exhibit less price vari-
ability than the average
stock—outperformed over
the long haul. “You earn
better risk-adjusted returns
with less-volatile stocks,”
says Ryan Issakainen, ETF
strategist for First Trust. “A
bunch of behavioral reasons
explain this, but the empiri-
cal evidence is there.”Winning more by losing less.
Over short periods, the
returns of low-volatilitystocks typically fail to
match their benchmarks—
in both up and down mar-
kets. New research from
S&P Dow Jones Indices
confirms earlier studies:
Low-volatility stocks out-
perform other stocks in
down markets far more
than they lag in up markets.
Low-vol funds are hot
right now. Assets in ex-
change-traded funds that
follow the strategy have
grown nearly 40% since the
end of 2018, to $81 billion in
June 2019, compared with
a 20% gain for U.S. stock
ETFs overall. But about half
of the ETFs in the category
are less than two years old—
too short a track record for
us to recommend.
Each of the five funds on
our short list has at least a
five-year track record. They
don’t all follow the same
approach to low-volatility
investing. Some pay close
attention to sector and
country weightings; others
pay no heed to either. But
they all deliver a less bumpy
ride than broad interna-
tional markets.How to Navigate
Overseas Investing
Low-volatility funds can help you ride out the ups and downs
of foreign markets. BY NELLIE S. HUANGFUNDS