Ossiam launches low volatility ETFs
Ossiam, a French ETF provider, is rolling out a series of ETF products that offer an alternative to the traditional equity market cap-weighted indices.
Ossiam, the Paris-based boutique investment manager, is rolling out a series of ETF products across European stock exchanges that offer an alternative to the traditional equity market cap-weighted indices.
The Ossiam Minimum Variance ETF family and the Ossiam Equal Weight ETFs family have been launched across Europe, on the exchanges of Frankfurt, Milan, Paris and London. The products are set to be launched in Switzerland. The investment universe for these ETFs are respectively the S&P500 and the STOXX Europe 600. They are targeted at institutional and high net worth investors and offer 30% less volatility.
In a statement, Ossiam said: “The Ossiam Minimum Variance ETFs are the first ETFs offering access to a diversified portfolio where securities are selected and weighted with the intention to mitigate risk.” The Ossiam Equal Weight ETFs are based on Eurozone and broad European indices attributing the same weight to each of their constituents to avoid concentration effects and bias towards large companies.
Ossiam, a subsidiary of Natixis Global Asset Management, will market and distribute the funds through Natixis Global Associates.
Bruno Poulin, chief executive of Ossiam, said: “First of their kind, the ETFs give access to transparent investment strategies with complementary risk profiles that are easy to integrate into global portfolio allocation. The Minimum Variance strategy aims to offer investors an optimised solution with lower volatility at a competitive price. In addition, we chose to develop ETFs on equally weighted indices. This is a very simple way to build better-diversified portfolios and avoid the concentration and trend-following bias of market-cap weighted indices.”
The funds are not designed to compete with the standard ETF, but to be included in a portfolio with the aim of correcting the inherent bias of a market-cap weighted ETF, says Poulin. The managers ensure the portfolio is 100% invested, to screen out shorted stocks and cash positions. The screening process results in the portfolio having 30% less volatility than the
Selection involves the use of a liquidity filter and an optimization process, resulting in the selection of about 300 funds. From this total, an average of 70-90 funds is chosen with low volatility and low correlation to each other. Each stock has a maximum weighting of 4.5% of the value of the portfolio, with each industrial sector given a maximum weighting of 20% to respect diversification and to fully reflect the stocks universe. A dispersion constraint gives each fund a minimum of 50 stocks.
Ossiam publishes details of the underlying stock on their website, though this is offered with two days’ delay, to meet market requirements. A real time indicative Net Asset Value calculated by Euronext every 15 minutes.
Also published on their website is the list of the swap counterparties, in recognition of increasing investor fears that swaps introduce credit risk. Poulin says the counterparties are chosen on an open architecture basis in a beauty contest, selected for their credit rating, reputation, quality of service and price.