With Low Volatility ETFs Being All The Rage, This One (Sort Of) Keeps Quiet

The conversation involving low volatility exchange traded funds underscores investor bias for domestic large-cap stocks because that conversation is typically dominated by just two funds: the iShares Edge MSCI Min Vol U.S.A. ETF USMV and the Invesco S&P 500 Low Volatility ETF SPLV.

Year to date, USMV has seen inflows of $12.82 billion, a total surpassed by just one other ETF. SPLV isn't a slouch, having pulled in $2.64 billion in new assets. Bottom line: investors are loving low vol ETFs this year and some market observers are growing concerned the trade is increasingly crowded.

That may be the case and it may affirmed by the fact that SPLV and USMV aren't the only low volatility funds see significant inflows.

Why It's Important

The Invesco S&P MidCap Low Volatility ETF XMLV, the mid-cap counterpart to the aforementioned SPLV, has been a prodigious adder of assets this year. As of Nov. 5, XMLV had $3.59 billion in assets under management, according to issuer data.

Based on that figure and just over 50 dedicated mid-cap ETFs listed in the U.S., just nine members of that group are larger than XMLV.

It may be a stretch to call XMLV a crowded traded, but data confirm there's been recent enthusiasm for the fund. Over the past 90 days, investors have added $421.55 million to the low vol mid-cap ETF, a total surpassed by just three other Invesco ETFs, including SPLV.

Year to date, XMLV has garnered inflows of $1.40 billion, good for second-best in the Invesco stable behind only SPLV.

What's Next

Although the low volatility trade appears crowded, there are no guarantees it's ending anytime soon. Even it does, that doesn't mean severe repudiation of XMLV.

As it is, XMLV is proving to be a viable alternative to traditional, diversified mid-cap funds. Year to date, the Invesco ETF is up 21.1%, trailing the S&P MidCap 400 Index by 50 basis, but the fund has been 480 basis points less volatile than the mid-cap benchmark, confirming superior risk-adjusted returns.

That may be enough to continue luring investors to XMLV.

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