Low Volatility ETFs Topping Traditional Counterparts
There is no denying the allure of finding the next Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN) or Google (NASDAQ: GOOG) is intense. There is also no denying that many investors view stocks such as General Mills (NYSE: GIS), PepsiCo (NYSE: PEP) and Procter & Gamble (NYSE: PG) as boring.
Stodgy stocks that are significantly less volatile than many growth names can boast at least one important factor: High returns. From 1990 through 2011, the market's least risky stocks outperformed the more volatile counterparts by noteworthy margins.
That is not to say General Mills outperformed Apple, but the performance of so-called boring stocks relative to more exciting issues underscores the rising popularity of low volatility ETFs. And since low volatility stocks are outpacing racier rivals, it is not surprising to learn that some "low vol" ETFs are outperforming traditional equivalents.
Here are some interesting examples:
PowerShares S&P 500 Low Volatility Portfolio (NYSE: SPLV) The PowerShares S&P 500 Low Volatility Portfolio undoubtedly the big kahuna of the low volatility ETF world and it should be noted that year-to-date, SPLV has lagged the S&P 500. However, over the past year, SPLV has a fair lead on the SPDR S&P 500 (NYSE: SPY).
Outperforming SPY is not the only feather in SPLV's cap. Over the past year, the ETF has outpaced the Consumer Staples Select Sector SPDR (NYSE: XLP) and the Utilities Select Sector SPDR (NYSE: XLU). Utilities and staples names represent over 60 percent of XLP's weight.
iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSE: EEMV) Just as SPLV is the dominant low volatility focused on U.S. equities, the iShares MSCI Emerging Markets Minimum Volatility Index Fund has carved out similar niche for itself in the emerging markets world. Year-to-date, EEMV has topped the iShares MSCI Emerging Markets Index Fund (NYSE: EEM) by nearly 600 basis points and the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) by more than 400 basis points.
With an expense ratio of 0.25 percent, EEMV is far cheaper than EEM and only moderately pricier than VWO.
iShares MSCI EAFE Minimum Volatility Index Fund (NYSE: EFAV) The iShares MSCI EAFE Index Fund (NYSE: EFA) has over $34.6 billion in AUM, making it one of the 10-largest U.S. ETFs by assets. By comparison, EFAV, the low volatility equivalent is small with $73 million in AUM. This is another case of size not being indicative of superior returns with ETFs.
Not only have investors been treated to superior returns with EFAV this year, the 10-month old ETF has an annual expense ratio of 0.2 percent compared to 0.34 percent for EFA.
iShares MSCI All Country World Minimum Volatility Index Fund (NYSE: ACWV) The iShares MSCI All Country World Minimum Volatility Index Fund shows some noticeable differences when compared to its traditional counterpart, the iShares MSCI All Country World Minimum Index Fund (NASDAQ: ACWI).
First, ACWI is six times larger by assets than ACWV. The former is also slightly cheaper than the latter. ACWI has an expense ratio of 0.34 percent while ACWI charges 0.35 percent. However, ACWV is able to trump that slight difference in fees by topping ACWI by about 80 basis points year-to-date.
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