Come Together: Low Volatility Meets Equal-Weight In These ETFs
There is an increasing number of ways to approach smart or strategic beta methodologies in the world of exchange-traded funds. Some critics would argue the universe encompassing strategic beta is becoming unwieldy and too complex for many advisors and investors to digest.
What cannot be debated is that equal-weight and low volatility strategies are two of the most widely embraced strategic beta avenues. Fortunately, equal-weight and low volatility are, usually, relatively easy to understand, so combining the two themes under the umbrella of a single ETF should be seen as a feasible adventure.
New ETF Adventures For PowerShares
PowerShares, the fourth-largest U.S. ETF issuer, has done just that with last Thursday's launches of the PowerShares Russell 1000 Low Beta Equal Weight Portfolio (POWERSHARES EXCHANGE TRADED FD TST (NASDAQ: USLB)) and the
This is not new territory for PowerShares. For example, the success of the PowerShares S&P 500 Low Volatility Portfolio (PowerShares Exchange-Traded Fund Trust II (NYSE: SPLV)) sparked the creation of the PowerShares S&P International Developed Low Volatility Portfolio (PowerShares Exchange-Traded Fund Trust II (NYSE: IDLV)).
The PowerShares Russell 1000 Low Beta Equal Weight Portfolio is home to nearly 420 Russell 1000 constituents exhibiting low beta traits. The new ETF tracks the Russell 1000 Low Beta Equal Weight Index, which is part of a new index series from indexing giant FTSE Russell.
“This new index series is designed to reflect the performance of securities exhibiting relatively low beta, or market volatility, where all index constituents are weighted equally. The new series initially includes two indexes based on well-recognized market capitalization weighted benchmarks from FTSE Russell. The Russell 1000® Low Beta Equal Weight Index tracks US large cap stocks and the FTSE Developed ex-US Low Beta Equal Weight Index tracks large and mid-cap stocks from developed markets outside the US,” said FTSE Russell in a statement.
FTSE Russell And PowerShares’ Relationship
FTSE Russell and PowerShares have an expanding, successful partnership that includes some well-known and fast-growing strategic beta ETFs. The PowerShares Russell 1000 Equal Weight POrtfolio (NYSE: EQAL) is part of that group. Still not even a year old, EQAL is home to $153.4 million in assets.
USLB, which charges 0.35 percent per year, allocates 27.7 percent of its weight to financial services stocks, more than double the weight assigned to healthcare, the new ETF's second-largest sector weight.
The PowerShares FTSE International Low Beta Equal Weight Portfolio, USLB's international equivalent, follows the FTSE Developed ex-US Low Beta Equal Weight Index. Japan dominates the new ETF with a weight of 34.3 percent. No other country exceeds 7.8 percent in IDLB's lineup. IDLB, which holds nearly 800 stocks, devotes over 40 percent of its combined weight to industrial and financial services stocks.
As PowerShares Managing Director Dan Draper noted, advisors and professional investors are boosting their exposure to equal-weight and low volatility strategies.
“Survey results show that nearly half (48 percent) of the financial advisors surveyed use an equal weight index, or plan to use one in the near future, and more than half (52 percent) are already using or very likely to use a low volatility index,” said Draper in the statement.
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