Checking In: Turn Down The "Vol" (LVOL, SPLV)
They may have seemed like products whose focus was too narrow and it could have been argued that their audience was also potentially too narrow. Well, volatility ETFs, particularly the "low vol" varietal have proven the naysayers.
One of those other worthy choices is the Russell 1000 Low Volatility ETF (NYSE: LVOL), which is just a few weeks shy of its first birthday. Home to an expense ratio of just 0.2%, a conservative investor's dream, and 108 stocks, LVOL has also done a nice job of attracting assets under management. Over $72 million in 11 months of work isn't half bad when considering the fund isn't garnering much in the way of mainstream media attention.
Predictably, LVOL focuses on large-cap blue chips. The ETF's holdings have an average market cap of $70.64 billion. Consumer staples, health care and utilities names account for about 55% of the LVOL's weight. Producer durables and consumer discretionary names also receive double-digit allocations in the fund. Not surprisingly, energy, financials and materials combined for just 16% of LVOL's weight.
Eighteen of the 30 Dow Jones Industrial Average members are found in LVOL, including Coca-Cola (NYSE: KO) and Johnson & Johnson (NYSE: JNJ) among the top-10 holdings. There are some high-beta names in LVOL, such as Anadarko Petroleum (NYSE: APC) and Google (Nasdaq: GOOG), but with LVOL, it feels like for every one high beta name, there are seven or eight boring stocks.
Beyond holdings and expense ratio, the other primary concern with volatility ETFs is do they do what their names imply in various market settings? For example, investors can expect funds such as LVOL and SPLV to lag the S&P 500 when risk is truly being embraced. That's just logical given what stocks and sectors comprise these ETFs.
So working on the premise that the 2011 bottom was put in during October and that 2012 has generally been kind to stocks, LVOL and its rivals haven't exactly set the world on fire over the past three or six months. That said, during the worst times for the broader market over the past year, LVOL has been sturdy, declining less than the S&P 500 during the index's worst patches, implying that LVOL does in fact do its job.
The bottom line is an ETF such as LVOL isn't designed to excite. It's designed to endure and help keep conservative, long-term investors from having to worry about near-term market chop. LVOL does that.
For more on low-beta ETFs, please click HERE.
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