Volatility funds lure investors as markets turn jittery

Global managed volatility funds saw their first net inflows for more than a year last month, as markets reacted to growing concerns over the economic outlook, uncertainty around monetary policy, and bubble-like valuations in the technology sector.

According to LSEG Lipper data, managed volatility funds, which aim to minimize risks and provide stable returns during periods of uncertainty, recorded their first net inflows in 14 months, attracting USD 601 million in July.

Analysts expect further inflows into these funds in the coming months, as market jitters, triggered this month by worries over US labor markets and an unwinding of billions of dollars of yen-funded carry trades, deepen.

Managed volatility funds typically put money into low-volatility stocks, or use strategies such as options arbitrage, to exploit price and volatility discrepancies across the options market.

Earlier this month, Wall Street’s “fear gauge,” the CBOE Volatility Index, reached its highest level in more than four years, while the bond volatility index, the ICE BofA MOVE Index, spiked.

Although both indexes have since settled lower, lingering economic worries and uncertainties about US rate cuts continue to feed concerns that markets may experience another round of extreme volatility in the coming months.

“The demand for managed volatility funds is expected to remain high through the end of the year. This is due to the upcoming US elections and potential economic instability, which only increase market fluctuations,” said Julia Khandoshko, CEO at international broker Mind Money.

“Investors tend to use these funds as hedging tools and to protect their portfolios in similar conditions of uncertainty.”

According to LSEG data, the Invesco S&P 500 High Dividend Low Volatility ETF, JPMorgan Nasdaq Equity Premium Income ETF, and Fidelity SAI US Low Volatility Index Fund had the most inflows last month, securing approximately USD 774.58 million, USD 588.77 million and USD 395.61 million respectively.

This month, the iShares Edge MSCI World Minimum Volatility UCITS ETF USD A, JPMorgan Managed Income Fund L and Invesco S&P 500 Low Volatility ETF have garnered USD 137.25 million, USD 119.49 million and USD 87.2 million respectively in flows.

(Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan and David Holmes)