How to invest in low-volatility ETFs

How do I invest in the low volatility factor?

Stocks with low volatility tend to yield an excess return compared to the risk taken. This research-based observation is referred to as the low-volatility factor.

There are various possible explanations for this: For example, shares with low volatility may be perceived as less rewarding by investors as they are associated with less risk. Another theory suggests that investors generally overestimate their ability to forecast. For particularly volatile stocks, there is a greater disagreement between investors, which should lead to higher volatility and lower returns. Investors who want to implement these scientific findings in practice – for example, through ETFs – will quickly encounter two terms that pursue the same goal but differ fundamentally in their methodology: Low Volatility and Minimum Volatility.

• Low Volatility (single-stock approach): This approach looks at stocks in isolation. It simply selects the equities that have shown the lowest historical price fluctuations (standard deviation) in the past. These naturally defensive stocks – often from sectors such as utilities or consumer staples – are then given the highest weighting in the portfolio.
• Minimum Volatility / Minimum Variance (portfolio approach): Here, the focus is not on the fluctuation of individual stocks, but on the risk of the entire portfolio. Using mathematical models, a combination of stocks is selected that exhibits the lowest volatility as a collective. The decisive lever here is the correlation between the stocks. This leads to an interesting effect: a minimum volatility portfolio can certainly contain highly volatile individual stocks, provided they move in the opposite direction to the rest of the portfolio, thereby reducing overall risk through diversification.

Good to know: Globally available ETFs generally track Minimum Volatility strategies.
 
This factor strategy can also be implemented by means of an index. In this investment guide, you will find all available worldwide low volatility ETFs. Currently, there are 0 ETFs available.
 

• For the selected country of origin, there are no low-volatility ETFs available.
  You are able to select your country of origin on the top of the screen.

When choosing a low-volatility ETF one should consider several other factors in addition to the methodology of the underlying index and performance of an ETF. For better comparison, you will find a list of all low-volatility ETFs with details on size, cost, age, income, domicile and replication method ranked by fund size.

Compare all low-volatility ETFs in detail
Compare all low-volatility ETFs in a chart

• For the selected country of origin, there are no low-volatility ETFs available.
  You are able to select your country of origin on the top of the screen.