Market Overview

Investors Love This Small-Cap ETF


As highlighted by the sheer heft of many of the most popular small-cap exchange traded funds, many investors embrace accessing smaller stocks via the convenience and efficiency offered by the ETF structure.

Still, small-cap ETFs, just like the stocks they hold, are frequently more volatile than their large-cap equivalents. For investors looking to reduce some of that volatility, the low volatility ETF phenomenon has made its way to small-caps and that includes the increasingly popular PowerShares S&P SmallCap Low Volatility Portfolio (NYSE: XSLV).

Data suggest investors have been embracing XSLV. In fact, XSLV has more than doubled in size over the past year.

“XSLV debuted back in February of 2013, and we imagine that the five-star Morningstar ranking certainly does not hurt asset raising assets from the perspective of the issuer, PowerShares,” said Street One Financial Vice President Paul Weisbruch in a note out Wednesday.

XSLV holds the 120 least volatile members of the S&P SmallCap 600, making that small-cap index the more accurate comparison for XSLV's returns. Indeed, the ETF's asset growth is staggering. In early 2016, XSLV didn't even have $140 million in assets under management. Today, it has nearly $929 million in assets.

“Given the fact that Small-Cap stocks have been among the better performers in a post-Trump election environment, but there has recently been some position trimming and profit taking into this strength, a “Low Volatility” approach such as XSLV may receive even more attention here as folks seem to be making model changes in portfolios and perhaps taking some risk off of the table via liquidating the iShares Russell 2000 ETF (NYSE: IWM) and/or purchasing downside puts in the case of additional drawdown there,” said Weisbruch.

XSLV is also a play on rising interest rates as over a third of the ETF's weight is allocated to financial services stocks. On a combined basis, more than a third of XSLV's holdings are real estate or industrial stocks.

Although XSLV is a low volatility ETF, nearly a quarter of its holdings are small-cap growth stocks, a group not often thought of as offering reduced volatility traits.


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Posted-In: Long Ideas Broad U.S. Equity ETFs Specialty ETFs Small Cap Analysis Trading Ideas ETFs