The Other Low Volatility ETF Is Doing Alright, Too

June 21, 2019 12:01 pm
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The Other Low Volatility ETF Is Doing Alright, Too

The low volatility factor is one of the more beloved investment factors and when it comes to exchange traded funds dedicated to this school of investment thought, two in particular are, well, beloved.

While not all low volatility ETFs achieve “most popular” status, there are some overlooked yet credible funds in this group.

What Happened

Look at the Fidelity Low Volatility Factor ETF (NYSE:FDLO). FDLO has been on the market for nearly three years and has $216.5 million in assets under management, an admirable tally given the intense competition in this corner of the ETF market.

FDLO, which was one of just over 200 ETFs to hit all-time highs on Thursday, tracks the Fidelity U.S. Low Volatility Factor Index. That benchmark appears prosaic in its approach as it is designed to provide exposure to domestic large- and mid-cap stocks with favorable volatility traits.

Why It's Important

A look under the hood, as is always required with ETFs, reveals that FDLO is not the run-of-the-mill low volatility ETF. In fact, the Fidelity fund's allocations to three of the most defensive sectors – consumer staples, real estate and utilities – combine for just about 14% of the fund's weight.

Conversely, the fund's 21% weight to the technology is overweight relative to many traditional ETFs in this category. Said another way, it is not everyday that investors find Apple Inc. (NASDAQ:AAPL) and Google parent Alphabet Inc. (NASDAQ:GOOG) as the top two holdings in a low volatility ETF, but that is the case with FDLO.

The financial services and healthcare sectors, which are more defensive than technology, combine for over 27% of FDLO's weight.

What's Next

Predictably, sector-level differences are meaningful. While past performance is not a guarantee of future returns, FDLO has, since coming to market, outperformed the two largest domestic low volatility ETFs while being slightly more volatile.

FDLO's annual fee of 0.29%, or $29 on a $10,000 investment, is higher than some of its rivals, but Fidelity clients can realize some savings because the fund is available on the firm's commission-free ETF platform.

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