Back in mid-July, the iShares Edge MSCI Minimum Volatility USA ETF (USMV) was up over 12% for the year, more than double the return of the S&P 500 at the time. Fast forward to last Friday and the USMV is only up 5% year to date, only a percentage point ahead of the index.
Don't put too much weight into the USMV's second half selloff, it was trading ahead of itself early in the year anyway, said Robert Nestor, managing director and head of iShares Smart Beta Strategy at BlackRock (BLK) .
"Investors were very concerned about the risk in their portfolios given all the macro trends, so defensive areas were bid up a little earlier in the year and later they started to come back to the rest of the market," said Nestor. "It does not change the fundamental strategy there which is to reduce risk, not outperform."
The iShares Edge MSCI Min Vol USA exchange-traded fund seeks to track the investment results of an index composed of U.S. equities that taken as a whole have lower volatility characteristics relative to the broader U.S. equity market. Healthcare stocks are the leading sector in the USMV, taking up 19% of assets, followed by information technology and consumer staples at 15% each and financials at 10%.
Nestor said the iShares Edge MSCI USA Momentum Factor ETF (MTUM) , up 4% year to date, has also been seeing inflows of late. In his view, the recent move towards momentum stocks reflects an increasing desire by investors to outperform and move away from the defensive stocks which led the market through July.