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A New Entrant To The Low Volatility ETF Field

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September 14, 2016 10:38 am
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A New Entrant To The Low Volatility ETF Field

Low volatility exchange-traded funds, for positive and negative reasons, have been the talk of the ETF universe this year, but all that attention is not exclusively reserved for large-cap funds such as the iShares Edge MSCI Min Vol USA ETF (iShares Trust (NYSE: USMV).

Some low volatility ETFs dedicated to mid- and small-cap stocks have been trouncing traditional benchmarks this year. Now, there is a new competitor in that arena. The iShares Edge MSCI Min Vol USA Small-Cap ETF (iShares Trust ETF (BATS: SMMV)), which debuted last week.

Smiling On SMMV

SMMV, which can be seen as the small-cap sibling to the wildly popular USMV, follows the MSCI USA Small Cap Minimum Volatility (USD) Index and holds 374 stocks.

Related Link: Here Are 8 Key Market-Moving Events Left To Come This Year

Due to the perception held by some that investors take on substantial risk to generate larger returns, the idea of low volatility investing has been catching plenty of flack as well. The most frequently used criticism of low volatility ETFs is that the trade is becoming crowded, with critics alleging it is impossible for crowded trades to end well.

Shaking Off The Critiques

Another criticism of low volatility ETFs, particularly the large-cap variety, is that they are heavily allocated to richly valued, defensive sectors such as consumer staples and utilities.

While SMMV's combined weight of 16.7 percent to staples and utilities stocks is more than double the Russell 2000's combined weight to those sectors, those are two of the smallest sector allocations in the new ETF.

SMMV devotes 17.7 percent of its lineup to financial services names with healthcare and real estate names combing for 28.4 percent.

The new ETF charges 0.2 percent per year, or $20 on a $10,000 investment.

SMMV is also another coup for BATS, which is now home to 43 iShares ETFs.

What SMMV Means For BATS

“Bats executed 24.1 percent of U.S. ETF trading in August and has been the #1 U.S. market for ETF trading and the #1 U.S. market for continuous equities trading for every month of 2016. In addition, Bats has won 26 percent of all new U.S. ETF listings year-to-date vs only 9 percent for full-year 2015,” according to the exchange operator.

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