One of the most popular
launched in the past couple years is PowerShares S&P 500 Low
Volatility Portfolio (NYSE:
), and it's not hard to guess why.
After suffering through the dot-com crash and 2008 financial
crisis, investors are putting a premium on safety, particularly
when dipping their toes into stocks.
In the last five years, investors have pulled $548 billion from
U.S. equity mutual funds and plowed more than $1 trillion into
taxable fixed-income funds, according to ConverEx Group. However,
equity-based ETFs have gathered $330 billion of inflows during the
Recently, a decent chunk of these ETF flows has been earmarked
to "safer" funds that employ low-volatility and dividend strategies
For example, SPLV has quickly grown to over $3 billion in assets
after launching in May 2011. The fund is one of the biggest success
stories in ETFs the past few years, and investors can expect more
low-volatility funds to hit the market in 2013.
The ETF's tracking index is comprised of the 100 stocks from the
S&P 500 with the lowest realized volatility the past year.
Volatility is a measure of a security's tendency to jump around in
SPLV has been popular because the strategy is relatively easy to
explain and understand, and investors want some downside protection
when venturing into stocks.
The fund turned in a respectable 2012 with a 10.1% total return
but it did trail the S&P 500, which gained 16%, according to
Morningstar. "Naturally, with a low-volatility bent, the fund
emphasizes defensive sectors such as utilities and consumer
staples," the investment researcher says in a profile of SPLV.
The fund's underperformance relative to the S&P 500 can be
attributed partly to the overweight in these two sectors. Utilities
Select Sector SPDR (NYSE:
) rose just 1 percent last year, while Consumer Staples Select
Sector SPDR (NYSE:
) added 10.7 percent.
SPLV has 31 percent in the utilities sector and 26.8 percent in
consumer staples, according to manager Invesco PowerShares.
Low-volatility strategies have historically earned "excellent
risk-adjusted returns" but can "perform miserably during furious
bear markets," Morningstar notes.
Now, Invesco PowerShares is readying a pair of funds in an
attempt to capitalize on the success of SPLV. According to a recent
filing, the firm wants to launch PowerShares S&P 400 Low
Volatility Portfolio and PowerShares S&P 600 Low Volatility
Portfolio, which would track the mid-cap and small-cap portions of
the U.S. stock market, respectively.
Other existing ETFs on the market designed to track
low-volatility benchmarks include:
iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSE:
) iShares MSCI All Country World Minimum Volatility Index Fund
) iShares MSCI USA Minimum Volatility Index Fund (NYSE:
) PowerShares S&P International Developed Low Volatility (NYSE:
) PowerShares S&P Emerging Markets Low Volatility Portfolio
) iShares MSCI EAFE Minimum Volatility Index Fund (NYSE:
) EGShares Low Volatility Emerging Markets Dividend ETF (NYSE:
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