Market Overview

S&P Lukewarm On New Low Volatility ETFs


As Benzinga has recently noted, volatility ETFs have become a popular sub-sector of the ETF universe. However, not all volatility funds are created equal. At least that's the sentiment of S&P Capital IQ, which examined three new "low vol" ETFs in a research note.

There is something to be said for low volatility investing. As S&P notes, over the past 11 years, the S&P 500 Low Volatility Index surged 163% compared to a decline of 11% for the S&P 500. That might help explain why some newly minted low volatility ETFs have proven popular with investors. And it is probably the reason why issuers continue to roll out these products.

Still, S&P is slightly cautious on three of the new low volatility ETFs and in a research note, the firm gave Marketweight ratings to the PowerShares S&P 500 Low Volatility ETF (NYSE: SPLV), Russell 1000 Low Volatility ETF (NYSE: LVOL) and the iShares USA Minimum Volatility Index Fund (NYSE: USMV).

The PowerShares S&P 500 Low Volatility ETF is the largest of the trio with just over $1 billion in assets under management. With an expense ratio of 0.25%, the ETF is home to 99 S&P 500 members.

"The ETF earns a neutral input for the S&P STARS of the portfolio, as a number of the top-10 assets are hold-recommended, such as Kimberly Clark (NYSE: KMB), Procter & Gamble (NYSE: PG) and Southern (NSYE: SO). However, these stocks and many others in the ETF receive above-average S&P Quality Rankings for the consistency and growth of their earnings and dividends," S&P said in the note.

The Russell 1000 Low Volatility ETF has $34.5 million in AUM and is home to 106 stocks. Almost 44% of the ETF's weight is allocated to consumer staples and utilities stocks.

The iShares USA Minimum Volatility Index Fund is the newest and smallest of the ETFs in terms of AUM. Having debuted in October, USMV has just over $8 million in AUM.

"USMV earns a neutral input for the S&P STARS and a favorable one for the S&P Quality Ranking of its holdings. Top-10 holdings included Bristol-Myers Squibb (NYSE: BMY), General Mills (NYSE: GIS) and Paychex (Nasdaq: PAYX). Overall, the relatively thinly traded ETF earns a Marketweight ranking, despite its modest 0.15% gross expense ratio," S&P said.

Posted-In: Analyst Color Long Ideas News Broad U.S. Equity ETFs Short Ideas Specialty ETFs New ETFs Initiation


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