A Compelling Global-Stock Fund for Risk-Averse Investors
Bronze-rated Vanguard Global Minimum Volatility should offer a more favorable risk/reward trade-off than the broader market over a full market cycle.
Vanguard Global Minimum Volatility Fund (VMVFX) is a compelling option for risk-averse investors. Its managers attempt to offer lower volatility than the FTSE Global All Cap Index, which includes both U.S. and foreign stocks. To do this, the managers select stocks from this index using an optimization approach that takes into account each stock's historical volatility, factor exposures, and the correlation between these stocks. But they also constrain this model to limit sector and country tilts from this index and to try to keep individual positions small. In order to further mitigate risk, the managers hedge the fund's foreign currency exposure.
This is a rules-driven approach that does not rely on qualitative security selection. But the managers do have some flexibility to trade patiently to reduce transaction costs, and they may adjust the model as necessary in order to more effectively manage risk.
Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.