There is no denying that low volatility
are becoming increasingly popular with investors. Just look at
what this sub-sector of the ETF universe has been able to
accomplish in less than years.
The king of the group is the PowerShares S&P 500 Low
Volatility Portfolio (NYSE:
), which has raked in almost $3.5 billion in assets. SPLV will
not turn two years old until May.
On Wednesday, iShares announced its four-ETF suite of low
has topped a combined $4 billion in assets under
. That quartet of ETFs debuted in October 2011. The trend of
robust inflows to low or minimum volatility ETFs is not just
continuing. It is surging.
"This year through February 19, as the chart shows, min vol
funds have attracted average monthly flows of close to $900
million. That is more than double the average monthly flows we
saw in 2012 and far above 2011's average monthly flows of less
than $100 million,"
according to a note by Dodd Kittsley
, global head of ETP research at BlackRock (NYSE:
As is often the case with various corners of the ETF space,
some "low vol" funds are gaining brand-name recognition, such as
SPLV, while some still undiscovered. However, there are a few
that fit into the latter category that investors should have a
PowerShares S&P 500 High Dividend Portfolio (NYSE:
) Obviously, SPHD's name indicates this is a dividend ETF, which
it is and it is arguably one of the
more compelling new income funds on the
However, SPHD's underlying index tells investors this is low
volatility play as well. The fund tracks the S&P 500 Low
Volatility High Dividend Index, which tracks the 50 S&P 500
components with historically high dividend yields and low
volatility. That combination could be alluring for investors that
are looking for more in the way yield.
For example, SPHD has a 30-day SEC of over four percent. That
easily exceeds that of many popular dividend ETFs that do not
screen for low volatility names. Like SPLV, SPHD pays a monthly
dividend and features large weights to utilities (over 23
percent) and consumer staples (over 13 percent). SPHD is up 7.7
percent year-to-date, outpacing the SPDR S&P 500 (NYSE:
) by about 40 basis points in the process.
iShares MSCI EAFE Minimum Volatility Index Fund (NYSE:
) The iShares MSCI EAFE Minimum Volatility Index Fund is the low
volatility answer to the wildly popular ishares MSCI EAFE Index
), one of the largest ETFs of any stripe. EFAV is not nearly as
big as EFA, though with $287.6 million in AUM the latter is by no
EFAV is cheaper than EFA with a an expense ratio of 0.2
percent compared to 0.34 percent for EFA, but the lower expenses
come with some cost to investors as EFA has been the better
performer since EFAV debuted in October.
Indicating that market environment plays an importance part in
the returns accrued by low volatility ETFs, EFAV has sharply
outpaced EFA this year as Eurozone fears have once again risen.
EFAV's sector weights give away the reasons for its
out-performance of EFA this year.
EFAV's weight to financials is 570 basis points less than
EFA's, but the former's weight to consumer staples and health
care names are each more than 500 basis points greater than the
PowerShares S&P International Developed Low Volatility
) For the moment, the PowerShares S&P International Developed
Low Volatility Portfolio is one of those ETFs that fans of
superficial metrics such as assets and volume love to hate. IDLV
has just under $35 million in AUM and average daily volume of
less than 16,900 shares.
IDLV features at least one surprise, that being a 25.8 percent
weight to financial services stocks, a fairly large allocation to
that sector among low volatility ETFs. Consumer staples follow
with a weight of 21.8 percent. On the other hand, IDLV does
temper volatility by featuring scant Eurozone exposure. For
example, Germany and the Netherlands combine for less than 2.7
percent of the ETF's weight.
At the country level, there are two other issues to consider
with IDLV. First is a 38.5 percent weight to Japan. As that
exposure is unhedged, IDLV could be somewhat vulnerable if the
yen bounces back. Second, the ETF has an 11.7 percent weight to
the U.K., which recently lost its AAA credit rating.
The good news is IDLV is up 4.3 percent year-to-date and has a
30-day SEC yield of 4.42 percent,
according to PowerShares data. For more on ETFs,
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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