A desire to reduce risk exposure yet maintain an allocation to equities is driving institutional investor appetite for low-volatility equities strategies way, way up.
“2015 has been an outsized year. This really was a banner year,” said Sara Shores, managing director and global head of smart beta at BlackRock Inc. in San Francisco.
Take BlackRock's iShares' minimum volatility suite, for example. This family of exchange-traded funds had total AUM of $15 billion as of Nov. 24; its year-to-date inflows totaled $7 billion, iShares' said.
The universe of institutional low-volatility assets was $110.36 billion as of Sept. 30, up 155% from three years earlier, data from Marietta, Ga.-based eVestment LLC show.
Investor demand for low-volatility offerings is driven by market uncertainty, a shift toward an outcome-oriented approach and a desire to rethink risk tolerance and risk exposure. Additionally, as more baby boomers move into retirement, defined benefit plans are downshifting, moving into defensive postures to protect assets, all factors that play to low-volatility strategies.
Markets whipsawed investors this year. The turbulence in China rattled markets and sent the CBOE Volatility index spiking in August. Greece's debt crisis and its citizens' vote in July to reject bailout terms caused indexes to tumble globally. And uncertainty about the Federal Reserve's plans on interest rates certainly didn't set investors at ease.