Wild Market: Are Minimum Volatility ETFs Proving Their Worth?
Things look good one day and terrible the next. That has been a common theme in global financial markets this year. In other words, these are volatile times.
While volatility can be trying on investors' souls, a new wave of ETFs have come along that are intended to help investors skirt the evils of volatility. Indeed, the recent growth of low volatility ETFs may be a product of the times or part of wider trend in the exchange-traded products universe.
Whether or not these new, low volatility funds take flight depends on whether or not they prove their mettle in times like these. Let's see if they're doing that right now.
PowerShares S&P 500 Low Volatility ETF (NYSE: SPLV): As we've previously noted, the PowerShares S&P 500 Low Volatility ETF has proved to be one of the top new ETFs of 2011. The 100-stock ETF now has over $600 million in assets under management, but that doesn't tell the entire the story. What's important is whether or not SPLV is working to trim volatility for investors. At the very least is SPLV outperforming the S&P 500?
Using a combined allocation of over 55% to utilities and consumer staples, indeed SPLV has been as good as advertised. It's not setting the world on fire, but it's not subject to broad ranges and it's doing better than the S&P 500.
Russell Developed ex-U.S. Low Volatility ETF (NYSE: XVOL): Since the Russell Developed ex-U.S. Low Volatility ETF is just a week old, it's far too early to pass judgment on this new low volatility play. But investors, a fact highlighted $4.9 million in AUM in just a week of existence. Yes, it's an international play, but fortunately its Euro Zone exposure is contained to about 11% combined through France, Netherlands and Germany.
Russell 1000 Low Volatility ETF (NYSE: LVOL): The Russell 1000 Low Volatility ETF, which debuted in May, is proving to be one of the better low volatility ETFs on the market. And its not hard to reduce volatility when over 53% of an ETF's weight lies in staples, utilities and health care stocks. We'll give LVOL credit on two fronts: A low expense ratio (0.2%) and that it has outpaced the S&P 500 since inception.
Other options to consider: The newly minted iShares MSCI USA Minimum Volatility Index Fund (NYSE: USMV) and the iShares MSCI Emerging Markets Minium Volatility Index Fund (NYSE: EEMV). USMV has over $2.6 million in AUM while EEMV has over $10.3 million. Information beyond that and expense ratios, 0.15% and 0.25% respectively, is currently sparse on the iShares Web site.
Bull case: These are high times for low volatility ETFs. A couple of these funds should make their bones in this environment.
Bear case: Risk on comes roaring back.
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