Back in college, one of my friends had an odd pitch to recruit me for the rugby team. Rugby is actually very simple, he said, it’s all about signal and noise: be readable to your teammates, keeping the line in good flow, and be random and wild to your opponent, keeping them on their toes. All I was thinking at the time was – give me a steak because I need to put on a few pounds before considering the offer. Nevertheless, my experience as a portfolio manager and my work with investment teams helped me realize how insightful my friend was. Most human beings – investors included – love clear signals and dislike noise. Clarity can create an assuring sense of order, while randomness can generate a deep sense of discomfort and anxiety.

The Market Can Change Teams
Equity markets abruptly switched teams in January 2018. In short order, they moved from behaving as a teammate to behaving as an opponent – one that kept many investors watching their positioning. In fact, the S&P 500 Index®1 moved by more than 1% in 23 days during the first quarter of this year, a frequency not seen since 2016. There were only 4 such days per quarter on average over the previous seven quarters. This return to more volatile markets has caused increased anxiety on the part of many investors and financial professionals.

Signal or Noise?
Despite all the commotion, equity markets finished Q1 2018 barely flat. In hindsight, there was a lot of noise, but few indicators of any serious economic downturn: lot of noise, very little signal. What might investors expect from markets in the near term? Considering the already rich earnings forecasts and valuations, the upcoming US mid-term elections, as well as trade and geopolitical tensions, Seeyond’s investment team believes the next few quarters could be equally noisy, despite the fact that global economic conditions may continue to send signals of good health.

Contending with Volatility
Eight in ten advisors in the US say that preventing clients from making investment decisions based on their emotions in important to their success.2 What to do about it? Seeyond believes strategies which can make it easier to stay invested despite market noise have a role to play during periods of volatility. Such strategies may be particularly relevant to those who invest internationally. European equities, for example, are traditionally more prone to anxiety buildups and can arguably be more challenging to navigate during periods of turbulence, given the complex interplay of trade, policy, and economics within the European Union.

The Natixis Seeyond International Minimum Volatility ETF3 (MVIN) seeks long term capital appreciation with less volatility than typically experienced by international equity markets. The ETF strives to generate returns in sideways markets through systematic, risk-based portfolio construction and active implementation. Investing, like rugby, has its challenges. However, market noise is not necessarily a signal of a prolonged economic downturn. For investors looking to better cope with volatility, MVIN may be a strategy to consider.

 


1 S&P 500® Index is a widely recognized measure of U.S. stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large cap segment of the US equities market.

2 Natixis Investment Managers. 2018 Financial Advisors Survey.

3 An exchange-traded fund, or ETF, is a marketable security that tracks an index, commodity, bonds, or a basket of assets like an index fund. ETFs trade like common stock on a stock exchange and experience price fluctuations throughout the day as they are bought and sold. Seeyond sub-advises the Natixis Seeyond Minimum Volatility ETF (MVIN).

Seeyond is an affiliate of Natixis Investment Managers dedicated to Active Quantitative strategies.

Exchange-traded funds (ETFs) trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than the ETF's net asset value. Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns. Unlike typical exchange-traded funds, there are no indexes that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. There is no assurance that the investment process will consistently lead to successful investing. Volatility management techniques may result in periods of loss and underperformance, may limit the Fund's ability to participate in rising markets and may increase transaction costs. Equity securities are volatile and can decline significantly in response to broad market and economic conditions. Foreign securities may involve heightened risk due to currency fluctuations. Additionally, they may be subject to greater political, economic, environmental, credit, and information risks. Foreign securities may be subject to higher volatility than US securities, due to varying degrees of regulation and limited liquidity. Currency exchange rates between the US dollar and foreign currencies may cause the value of the fund’s investments to decline.

All investing involves risk, including the risk of loss. Diversification does not guarantee a profit or protect against a loss.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.

Before investing, consider the fund's investment objectives, risk, charges, and expenses. Visit im.natixis.com for a prospectus or a summary prospectus containing this and other information. Read it carefully.

ALPS Distributors, Inc. is the distributor for the Natixis Seeyond International Minimum Volatility ETF. Natixis Distribution, L.P. is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, L.P.

Seeyond is operated in the US through Ostrum Asset Management U.S., LLC.

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