Beyond SPLV: Low Volatility ETFs to Survive a Wild Market
In a volatile market, plenty of investors have opted to embrace ETFs that frame themselves as low volatility plays. To be sure, this corner of the ETF universe has expanded rapidly.
Even with the explosion in the number of low volatility ETFs, one fund dominates the landscape: The PowerShares S&P 500 Low Volatility Portfolio (NYSE: SPLV). SPLV, which debuted in May 2011, is now home to over $2.3 billion in assets under management. That AUM total cements SPLV's status as one of the most successful ETFs to debut in 2011 and the king of the low volatility ETF block.
SPLV is undeniably large and the fund's performance since inception has been impressive. The ETF has gained 11.3 percent since it came to market, but that does not mean there are not other low volatility funds worth considering.
iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSE: EEMV) Many investors have been conditioned to believe that the phrases "low volatility" and "emerging markets" do not belong together, but the iShares MSCI Emerging Markets Minimum Volatility Index Fund has proven that theory incorrect.
EEMV, which debuted in October, has proven to be quite popular with investors, hauling in $285.4 million in assets under management. Despite a tough environment for emerging markets ETFs, EEMV is proving the low volatility theme can be applied to developing nations. Year-to-date, EEMV is up almost 12 percent compared to a 5.2 percent gain for the iShares MSCI Emerging Markets Index Fund (NYSE: EEM).
iShares MSCI USA Minimum Volatility Index Fund (NYSE: USMV) The iShares MSCI USA Minimum Volatility Index Fund is by no means small. The fund, which also debuted in October, now has $350.1 million in AUM but it does not garner the level of attention normally reserved for the aforementioned SPLV.
That is interesting when considering USMV has jumped 10.6 percent year-to-date compared to a gain of 8.2 percent for SPLV. One knock on USMV might be a surprisingly valuation metrics. The fund sports a price/earnings ratio north of 23 and price/book ratio of almost 4.7, according to iShares data.
Russell Developed ex-U.S. Low Volatility ETF (NYSE: XLVO) The Russell Developed ex-U.S. Low Volatility ETF is valid option for low volatility lovers that are looking for developed markets exposure with an ex-U.S. flair. Of course the risk with such a fund is some allocation to developed Europe, though only two Eurozone countries – Germany and the Netherlands – appear among XLVO's top-10 country weights.
The U.K. represents almost 27 percent of the fund's weight while Canada is next with an allocation of 14.5 percent. Country weights are not the issue here. If an investor is going to find something wrong with XLVO it would likely be an almost 19 percent weight to financial services stocks.
To be fair, XLVO has a favorable expense ratio of 0.25 percent and the fund has returned 5.7 percent year-to-date.
Russell 1000 Low Volatility ETF (NYSE: LVOL) A lot of folks may not realize this, but the Russell 1000 Low Volatility ETF has attracted $67.1 million in AUM since its May 2011 debut. Home to 105 stocks, LVOL is heavy on the usual sector suspects of the low volatility world. This means that staples and utilities combine for more than 38 percent of the fund's weight.
LVOL's beta measured against the Russell 3000 Index is 0.89 and the ETF's P/E ratio is below 18. No holding accounts for more than 2.2 percent of LVOL's weight and the honor of top individual holding goes to AT&T (NYSE: T). Kimberly-Clark (NYSE: KMB), Coca-Cola (NYSE: KO) and Verizon (NYSE: VZ) are also found among LVOL's top-10 lineup.
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