This BlackRock Volatility Haven ETF Is Luring Record Inflows

  • Many investors remain skeptical of the recent equity rally
  • Minimum-volatility ETF tracks companies deemed safer

The rockiest U.S. stock swings in more than four years are prompting traders to pour record sums into a BlackRock Inc. exchange-traded fund that tracks companies considered more stable.

The iShares MSCI USA Minimum Volatility ETF, which includes benchmark-beating firms such as AT&T Inc. and Procter & Gamble Co., has topped every other stock ETF by pulling in $2.8 billion this year. High demand for the fund, dubbed USMV, is a signal some investors aren’t convinced three straight weeks of U.S. equity gains will hold, says Macro Risk Advisors’ Pravit Chintawongvanich.

“A lot of people don’t believe in the rally,” said Chintawongvanich, head derivatives strategist at the New York firm. “Most of the time those low volatility stocks are going to be things like utilities, consumer staples, telecoms, real estate investment trusts -- sectors that have outperformed. USMV is a way to chase that.”

Moves in the Standard & Poor’s 500 Index have exceeded 1 percent daily on average this year on concerns about China, oil prices and deteriorating confidence in central-bank action. Even as worries have eased -- the benchmark on Monday touched a nine-week high -- the volume of stocks traded has decreased for a second month, indicating little conviction in the rebound.

While the S&P 500 has dropped this year, USMV hovers around a record and has gotten inflows almost every day. Its market cap has grown to more than $10 billion from $7.2 billion at the end of December. The ETF advanced 0.6 percent at 9:50 a.m. in New York.

The recent rebound is a sign that risk appetite is slowly returning to the market, says Dave Lutz, head of ETF trading at JonesTrading Institutional Services. He also notes the slump in volatility expectations. The index known as the VIX slipped below 20 from more than 28 last month.

Still, some see more bearish signals, most notably looking at the gold market. The SPDR Gold Shares ETF has attracted $5.7 billion of inflows this year, the most of any exchange-traded product, while surging demand in BlackRock’s iShares Gold Trust caught the firm so off guard it had to temporarily halt issuing new shares. Investors should buy the precious metal to prepare for volatility’s return, Russ Koesterich, global chief investment strategist at BlackRock, told Bloomberg Radio on March 4.

Earlier this year, investors crowded into securities that move conversely to stock swings, while withdrawing money from others that profit from higher volatility, such as the iPath S&P 500 VIX Short-Term Futures ETN. That exchange-traded note just had its biggest weekly inflows in three years.

“This rally may not have strong legs,” said Monish Shah, head of ETF trading at Mizuho Securities USA Inc. in New York. “Inflows into volatility-related ETFs and ETNs show investors expect volatility to return.”

Before it's here, it's on the Bloomberg Terminal.