Skip to main content

Market Overview

A Low Volatility Idea For May From PowerShares

A Low Volatility Idea For May From PowerShares

With a seasonally weak period for equities here and increased chatter about rising equity market volatility, some investors may want to consider low volatility strategies. Exchange traded funds can make that endeavor even easier.

The PowerShares S&P 500 Low Volatility Portfolio (NYSE: SPLV) is one of the largest domestic low volatility ETFs and CFRA Research's focus ETF for the month of May.

Embracing a low volatility fund in May could be a solid idea, as historical data points suggest defensive sectors often perform well in the fifth month of the year.

What Happened

SPLV tracks the S&P 500 Low Volatility Index, which is comprised of the 100 S&P 500 members with the lowest trailing 12-month volatility. The idea behind SPLV and other low volatility picks is not necessarily to capture all of a bull market's upside, but to minimize downside in bear markets. With midterm elections looming in November, SPLV could be worth a look now.

“The S&P 500 has usually experienced challenging times in the six months leading up to the early November midterm elections, possibly due to the uncertainty associated with the change in the presidential party’s representation in Congress,” CFRA ETF & Mutual Fund Research Director Todd Rosenbluth said in a Monday note. “Since 1946, the S&P 500 fell in price in 50 percent of all observations, declining an average 1.1 percent and slipping by double digits in five of nine times.”

Why It's Important

SPLV is sector-agnostic, meaning it is not married to the sectors investors usually associate with low volatility. Fortunately, that means a relatively low weight of just under 7.7 percent to the downtrodden consumer staples sector.

Conversely, rate-sensitive utilities are SPLV's largest sector weight at about 23.7 percent, but some of that rate sensitivity is diminished by a 20-percent allocation to financial services stocks.

“Since 1998, the S&P 500 Low Volatility index climbed 3 percent on average in the May-October period, stronger than the 1.2-percent total return for the broader S&P 500 index,” Rosenbluth said. “During times of traditional large-cap market volatility, the more defensively oriented low volatility index has performed better. Such data supports a look at SPLV, and what’s inside it makes it particularly appealing, in CFRA’s view.”

What's Next

SPLV does make good on its low volatility promise, as its three-year standard deviation is lower than that of the S&P 500. CFRA has Buy ratings on several of the fund's well-known holdings across multiple sectors. The research firm rates SPLV Overweight.

Related Links:

Best Sector ETFs for May

Staples ETFs are Getting Crushed


Related Articles (SPLV)

View Comments and Join the Discussion!

Posted-In: Analyst Color Long Ideas Broad U.S. Equity ETFs Top Stories Markets Analyst Ratings Trading Ideas ETFs Best of Benzinga

Latest Ratings

GIKColliers SecuritiesInitiates Coverage On14.0
SANWLake StreetInitiates Coverage On6.0
LILAMorgan StanleyDowngrades15.0
BEJP MorganUpgrades36.0
NEXACredit SuisseUpgrades11.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at