Market Overview

A New ETF For Low Volatility Fans

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A surefire way for a new exchange traded fund to get off to a good start is for that rookie ETF to come market well-heeled with commitments from an institutional investor or investors.

Some well-known ETF issuers used that recipe for success with funds they brought to market last year. That group includes State Street Global Advisors (SSgA), the third-largest U.S. ETF sponsor. In December, SSgA rolled out three new ETFs that were designed in partnership with the Alaska Permanent Fund Corporation (APFC). 

APFC spread about $1 billion across the three SSgA ETFs, a trio that includes the SPDR Russell 1000 Low Volatility Focus ETF (NYSE: ONEV). The SPDR Russell 1000 Low Volatility Focus ETF tracks the Russell 1000 Low Volatility Focused Factor Index and holds 424 stocks. Investors expecting this ETF to be heavy on utilities stocks could be surprised to learn utilities are merely ONEV's fifth-largest sector weight. Financial services, consumer discretionary, producer durables and consumer staples command more of ONEV's lineup than do utilities.

"The Russell 1000 Low Volatility Focused Factor Index is designed to reflect the performance of a segment of large-capitalization U.S. equity securities demonstrating a combination of core factors (high value, high quality, and low size characteristics), with a focus factor comprising low volatility characteristics," according to SSgA.

Said another way, ONEV is the latest member of the low volatility ETF fraternity that is not excessively exposed to utilities stocks, an important point to consider at a time when many market observers expect the Federal Reserve to boost interest rates multiple times this year.

ONEV's consumer discretionary weight of 16.5 percent is large by the standards of low volatility ETFs. For example, the two largest U.S. large-capitalization low volatility ETFs have a combined discretionary weight of just over 11 percent. None of ONEV's sector allocations are arrived at lightly as index provider FTSE Russell "utilizes a proprietary rules-based multi-factor scoring process that seeks to increase exposure (or "tilt") to companies in the Russell 1000 Index demonstrating the Factor Characteristics," adds SSgA.

None of ONEV's holdings command weights in excess of 1.32 percent. That roster includes Sysco Corporation (NYSE: SYY), The Kroger Co (NYSE: KR) and Kimberly-Clark Corp (NYSE: KMB).

 

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