And, while there have been few bright spots for investors in the global equity markets year-to-date, analysis by FTSE Russell shows that smart beta indexes which screen constituents based on lower volatility or lower beta characteristics among other factors have held up well relative to their market capitalization weighted peers amid recent market volatility as well as over the longer term.
FTSE Russell examined performance for the Russell 1000® Low Volatility Focused Factor Index and Russell 1000® Low Beta Equal Weight Index relative to the Russell 1000® Index for January to-date as well as the one, three and five year periods ended January 21.
Low volatility-oriented US large cap stocks have led in the near term and across market cycles as represented by smart beta indexes offered by FTSE Russell offering unique methodologies:
- The Russell 1000® Low Volatility Focused Factor Index is designed to capture exposure to a core of three factors – Quality, Value, Size – with an additional tilt focusing on Low Volatility.
- The Russell 1000® Low Beta Equal Weight Index is derived from a subset of Russell 1000® Index stocks and has been designed to reflect the performance of securities exhibiting relatively low beta, where all index constituents are weighted equally.
Ken O’Keeffe, Managing Director, Global ETPs, FTSE Russell:
“Examining recent and longer term performance for FTSE Russell indexes which focus on lower volatilty US large cap stocks relative to the market capitalization weighted Russell 1000® Index helps demonstrate the effects of having indexes that screen constituents for lower volatility characteristics among other factors. And while there may be few havens for investors during this period of heightened market volatility, investors now have access to a more powerful set of indexes to help them better understand market dynamics in up as well as down markets which can help them to to make more informed investment decisions.”
According to a FTSE Russell 2015 survey of retail financial advisors in the United States, the top three motivating reasons for financial advisors using index-based products were for help in pursuing downside protection in bad markets (62%), lowering volatility (53%) and increasing alpha (49%).
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Views expressed by Ken O’Keeffe are based on information as of January 21, 2016, are subject to change and do not necessarily reflect the views of FTSE Russell or the London Stock Exchange Group.
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