GlobalMinimum: High Returns with Low Volatility

11/25/2014 10:00 am EST

Focus: FUNDS

Mark Salzinger

Editor and Publisher, The No-Load Fund Investor

Despite its emphasis on low volatility instead of high total return, this featured fund recommendation has produced one of the highest total returns among all global equity funds so far in 2014, explains Mark Salzinger in No-Load Fund Investor.

In the first ten months of the year, GlobalMinimum Volatility (VMVFX) generated a total return of 10.8%, while the average return of the funds in the Global Equity category of our Performance Comparison tables was only 3.4%.

Launched last December, this is an actively managed fund run by the Vanguard Equity Investment Group. The managers of the Global Minimum Volatility fund attempt to provide broad global equity exposure with a lower degree of share price fluctuations, as compared to those of the average global stock fund.

They employ quantitative models to evaluate the companies in the fund’s benchmark, the FTSE Global All-Cap Index (Dollar Hedged).

They search for lower-risk stocks and combine them in such a way as to further limit the portfolio’s volatility. The fund includes about 200 stocks versus about 7,500 in the benchmark.

The managers also limit risk through diversification, which they ensure by carefully managing the fund’s weightings in countries, sectors, industries, and individual stocks.

Additionally, the managers eliminate most of the international currency risk through hedging into US dollars.

The fund is a bit underweight in the US stocks, at just 46.2% of assets (as of the end of September), versus 50.4% in the index. Equities from developed Asia account for 19.5% of fund assets, followed by European equities (17.6%), and emerging markets (8.8%).

We think Global Minimum Volatility is worthy of investment consideration, especially by investors who appreciate the idea of international equity diversification but also believe, as we do, that the relative attractiveness of the US economy will enable the US dollar to keep rising.

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