By David Stevenson – Apologies for sounding like a broken record, but I want to return yet again to the hoary old subject of smart beta and the voguish hunt for minimal volatility. Lyxor’s recent cross-listing of the Lyxor UCITS ETF MSCI World Risk Weighted (WDRL) on the London Stock Exchange has prompted me to ascertain whether the first wave of low volatility ETFs (I include minimum volatility and minimum variance ETFs in this grouping) has actually delivered on their promise.

Commodity ETFs rallied sharply higher on Wednesday after the US Federal Reserve said it would leave its quantitative easing programme unchanged, a policy largely seen as supporting commodity prices. Most risk assets reacted positively to the announcement, but gold and oil, in particular, experienced a strong bounce, with the SPDR Gold Shares (GLD), the world’s largest gold ETF, adding 4.5% and the United States Oil Fund (USO), the word’s largest oil ETF, adding 2.4%.

By David Stevenson – Over the last decade commodity trackers have literally come from nowhere to emerge as the next big thing in the world of alternative assets. But that huge success has also thrust the humble commodity index into the spotlight – many investors still struggle to understand why the main index families are so radically different or how futures-based structures can cope with the long-term effect of the roll yield. That debate has prompted many investors to demand better indices, and a small but hardy bunch of ETP pioneers has reacted by dabbling around with what are in effect next-generation indices.

Ossiam, a provider of smart beta exchange-traded funds (ETFs) and affiliate of Natixis Global Asset Management, has listed the world’s first risk-weighted commodity ETF, the Ossiam Risk Weighted Enhanced Commodity ex. Grains TR UCITS ETF (CRWU). The fund is fully UCITS compliant and provides investors with systematic long-only exposure to a diversified basket of 20 commodities futures contracts (excluding grains) with reduced volatility. It has been listed on the London Stock Exchange, Borsa Italiana, NYSE Euronext Paris and Xetra.

By David Stevenson – In just a matter of months, smart beta has emerged out of a technical netherworld into the investment mainstream. I’ve been banging on about various forms of smart beta for as long as I can remember, starting first with fundamentally weighted indices such as Research Affiliates’ RAFI suite, which are investable via ETFs offered by PowerShares, iShares and Lyxor, before moving on to low or minimum volatility indices popularised in ETF format by the likes of iShares, SPDR, PowerShares and Ossiam over the last year or so. Not forgetting, of course, the many successful high-dividend indices and ETFs.

PowerShares, a leading global provider of exchange-traded funds (ETFs) and a subsidiary of Invesco, has revealed that assets under management in its fundamentals-weighted suite of equity and fixed income ETFs, part of its larger smart beta range, recently passed the $5 billion mark. PowerShares offers such ETFs on local exchanges in the US, Canada and Europe, including the UK, France, Italy, Switzerland and Germany.

S&P Dow Jones has again added to its rapidly expanding suite of indices with the launch of the S&P Nordic Low Volatility Index, an index tracking the performance of the 30 least volatile stocks in the S&P Nordic Broad Market Index (BMI). The new index further enhances the index provider’s existing low-volatility line-up and reflects continued investor interest in low-volatile equity strategies.

Asset class performance has been very mixed so far this year with currency volatility re-awakened and softening global economic data suggesting more difficult times ahead, according to Stephen Cohen, Head of iShares EMEA Investment Strategy & Insight. So what can investors do? Cohen proposes four strategies: overweighting defensive equities and equity income; using developed market equities to access emerging markets; playing Japan via a currency-hedged solution; and mitigating interest rate risk in fixed income and looking at local currency emerging markets debt.

Smart beta is a term that seems to have suddenly emerged out of nowhere to describe the rise of a new form of ‘passive’ investing. The very words themselves conjure up a certain egg-headed technical prowess, implying that all the other beta trackers out there are just “back of the class” dullards, market capitalisation based, one-trick ponies that don’t do all the clever stuff that smart beta trackers can accomplish with their quantitative prowess. Scratch beneath the surface though and we discover a slightly more honest admission by the ETF industry.

David Stevenson has joined ETF Strategy as a weekly columnist. David is the author of the popular Financial Times Guide to Exchange Traded Funds and Index Funds and writes for the FT, Investors Chronicle and Investment Week. “I’m really excited to be writing a regular weekly column for ETF Strategy – in a very short period of time this online publication has established itself as the best source of analysis and research for investors who use ETFs here in Europe. Over the next year I can guarantee you that there’ll be many more developments at ETF Strategy, so watch this space!”, said Stevenson. In his debut column he considers European equity ETFs.