Similar weight class, different fighting style
As an illustration, MVIN is categorized by Morningstar in the Foreign Large Blend category – this is its assigned boxing weight class. This is fine with us, as one of its goals is to outperform the broader international market over the long term. That being said, we believe we have introduced to the Foreign Large Blend ring a boxer with a very different fighting style. Indeed, most boxers in the category are either benchmark huggers or very aggressive fighters – fast hitters who run the risk of being easily pushed into the ropes or knocked down when markets hit back. By contrast, Seeyond’s minimum volatility strategies are meant to be steadier punchers with the potential to parry the jabs and uppercuts of market turbulence.
What you get with MVIN is a strategy that has the potential to absorb market shocks, move with a lower beta, and maintain lower volatility over time. What’s more, our strategy also seeks to deliver returns in excess of the equity risk taken and outperform the broader market over the long term. In short, it seeks to take the hits of the market while it keeps fighting for returns.
Thinking in terms of outcome
It is important to reconcile minimum volatility strategies with investment approaches developed around the concept of “greater risk” leading to “greater reward.” Our experience talking to financial professionals and investors has led us to believe that one of the best ways to overcome this deep-rooted behavioral and cognitive bias may be to think in terms of outcome – i.e. investment goals and applications.
As we have discussed, minimum volatility strategies are in long-only equity and fully invested, seeking alpha generation and volatility reduction. However, because there is no silver bullet in the investment universe, one may expect to see minimum volatility strategies display a countercyclical pattern in their outperformance profile.
In other words, rather than mirroring the market’s highs and lows, minimum volatility strategies seek long term outperformance with a steadier return profile. They may be of interest to investors seeking to achieve one or several of the following investment goals:
- Outperforming the broader market over a full market cycle.
- Achieving significantly lower volatility, and a lower beta.2
- Complimenting traditional active equity strategies that seek alpha generation by taking on more risk.
- Accounts that need equity returns, but cannot endure high equity market volatility. A core allocation in minimum volatility has the potential to increase visibility on return dispersion when compared to traditional equity investments, and achieve a more efficient use of capital.
- Active investors who seek to tactically adjust their equity exposure within a long-only equity portfolio.
- More aggressive investors who want their equity allocation to work harder. A core allocation in minimum volatility strategies has the potential to free up a portfolio’s risk budget. This risk budget can then be invested in higher-octane strategies. In addition, the highly complementary nature of minimum volatility with some higher-octane equity strategies has the potential to yield steadier returns on aggregate, keep the alpha generating story intact, and limiting the risk of being drawn into emotional decisions when volatility rises.
1 Seeyond sub-advises the Natixis Seeyond Minimum Volatility ETF - MVIN. Seeyond is an affiliate of Natixis Investment Managers dedicated to Active Quantitative strategies.
2 Measures the volatility of a security or a portfolio in comparison to the market as a whole.
Alpha refers to the excess return of an investment relative to the return of a benchmark index.
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.
The Fund seeks long-term capital appreciation with less volatility than typically experienced by international equity markets
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.