In Hollywood, for every “Godfather II” or “Avengers: Infinity War,” there are a slew of sequels that fail to live up to the promise of the first movie or franchise installment.
The world of exchange traded funds has its fair share of dud sequels, but some notable ones as well.
What Happened
The Invesco S&P 500 ex-Rate Sensitive Low Volatility ETF XRLV can be considered a sequel to the popular PowerShares S&P 500 Low Volatility SPLV. XRLV is almost three and a half years old while the $7.35 billion SPLV, one of the largest low volatility ETFs, is more than seven years old.
While SPLV holds the 100 S&P 500 components with the lowest trailing 12-month volatility, XRLV's 100 holdings feature a combination of low volatility and reduced sensitivity to rising interest rates. The Federal Reserve has boosted borrowing costs seven times since XRLV came to market.
“To us, this highlights the appeal of the ETF as XRLV provides exposure to large-cap stocks with positive correlation to rising interest rates and with low volatility,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Monday. “On a three-year average annualized basis, XRLV's 15.4% return was well ahead of SPLV's 12.7%. However, the beta relative to the S&P 500 index of 0.89 was higher than SPLV's 0.67.”
Why It's Important
Worthwhile ETF sequels extend to international stocks as well. For example, the O’Shares FTSE Europe Quality Dividend ETF OEUR is the European answer to the well-known O'Shares FTSE US Quality Dividend ETF OUSA. Those ETFs debuted a month apart from each other just over three years ago.
“OEUR has approximately $40 million in assets and follows a similar smart-beta approach as OUSA. These index-based ETFs utilize three factors: high quality, high dividend yield and low volatility,” said Rosenbluth.
Three countries – the U.K., Switzerland and France – combine for nearly two-thirds of OEUR's geographic exposure.
What's Next
OEUR is lagging OUSA this year, though the opposite was true in 2017. As CFRA notes, OEUR's dividend yield of 3.70 percent is about 40 percent higher than the yield on its domestic counterpart.
CFRA has Overweight ratings on OUSA and XRLV.
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