Market Overview

Renewed Enthusiasm For Low Vol ETFs

Renewed Enthusiasm For Low Vol ETFs

With sectors such as technology and consumer discretionary performing well this year, it might surprise some investors to learn that low volatility exchange-traded funds have not been all that bad. Actually, the PowerShares S&P 500 Low Volatility Portfolio (NYSE: SPLV), the fund credited with starting the low volatility ETF craze, is up 10 percent year to date, slightly outpacing the S&P 500.

That is a solid performance for SPLV at a time when investors are widely favoring growth and momentum strategies. In August, a broad swath of previously high-flying sectors is retreating, while defensive utilities are displaying leadership. That is helping SPLV, which allocates almost 16.1 percent of its weight to utilities, making that the ETF's third-largest sector allocation. 

Data suggest some investors are returning to low volatility strategies. Last week, investors allocated $562.2 million to SPLV, good for the second-best total among all PowerShares ETFs, according to issuer data

Not Just SPLV

SPLV is one of the most recognizable names among low volatility ETFs, but it is has some counterparts for smaller stocks. That group includes the PowerShares S&P MidCap Low Volatility Portfolio (NYSE: XMLV).

The PowerShares S&P MidCap Low Volatility Portfolio holds the 80 members of the widely followed S&P MidCap 400 Index with the lowest trailing 12-month volatility, a strategy similar to what SPLV applies with the S&P 500. To be precise, XMLV currently holds 76 stocks, over 40 percent of which hail from the real estate and financial services sectors.

Investors are displaying some affinity for XMLV as well. Last week, the ETF saw inflows of $017.6 million, according to PowerShares data. That is good for the third-best weekly total among all PowerShares ETFs.

Small-Caps, Too

As has been widely documented, U.S. small-caps are struggling this year, a theme that the PowerShares S&P SmallCap Low Volatility Portfolio (NYSE: XSLV) has not been immune to.

XSLV holds the 120 members of the S&P SmallCap 600 Index with the lowest trailing 12-month volatility. The ETF currently holds 119 stocks. Nearly 46 percent of XSLV's combined weight is allocated to financial services and industrial names.

If investors are going to nibble at small-caps again, they may opt to do so with lower volatility fare. Last week, XSLV saw inflows of just over $83 million.

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