ETF with low equity risk to list on Tokyo Stock Exchange
01 Aug 2012
A new type of exchange-traded fund (ETF) that aims to suppress equity volatility to around half of the Tokyo Stock Price Index (TOPIX) will be listed on the Tokyo Stock Exchange (TSE).
MAXIS TOPIX Risk Control (10%) ETF is being offered by Mitsubishi UFJ Asset Management and TSE hopes this will spur greater investment by pension funds.
The fund will be listed on 9 August and it will attempt to control volatility to 10% compared with a TOPIX level of around 20%. Volatility rises when share prices experience sharp movements, such as a plunge in the market. The fund seeks to limit downward risk by containing portfolio volatility. A similar TSE-listed fund, MAXIS TOPIX Risk Control (5%) ETF, holds volatility to 5%.
Specifically, the fund will increase its cash ratio when TOPIX (including dividends) becomes more volatile, and its equity ratio when volatility falls. When historical volatility (here, the 252-day average deviation based on data from the past 100 trading days) surpasses 10%, the equity weighting will be lowered in accordance with the excess portion.
Trust banks and investment advisors have developed an increasing number of low-volatility equity strategies for pension funds and the emergence of a similarly minded ETF will widen the options.
The trust banks and investment advisors typically offer managed products for pension funds, so ETF are not commonly included. However, some pension funds are interested, especially smaller-scale funds with limited investment opportunities. TSE is expecting pension funds to be a key investor in the latest ETF.
Author: Nenkin Joho