As we move into a completely new fiscal year, thankfully have
a huge uncertainty known as the 'fiscal cliff' behind us.
However, it doesn't mean that the capital markets will be free
from any other obstacle in the year, as political issues could be
at the forefront once again in a few months thanks to the debt
Given that volatility could once again be on the rise as we
head further into 2013, some investors may want to consider a
lower risk play as this next event approaches. One easy way to do
this is via
which target low volatility stocks (read
The Best Investing Style ETF This Fiscal?
Of this group, there are a host of options out there. However,
we believe that you can find one of the best in the group by
looking to the Zacks ETF rank in order to find the top ranked ETF
in the group which could be poised for a solid risk adjusted
return in 2013.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in
the context of our outlook for the underlying industry, sector,
region, style box, or asset class. Our proprietary methodology
also takes into account the risk preferences of investors.
ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong
Sell) while they also receive one of three risk ratings, namely
Low, Medium, or High (see
Time to Invest in Low Volatility ETFs?
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of five ranks within each
risk bucket. Thus, the Zacks Rank reflects the expected return of
an ETF relative to other products with a similar level of risk
(see more in the
Zacks ETF Center
For investors seeking to apply this methodology to their
portfolio, we have taken a closer look at the top ranked SPLV
Launched in May of 2011, the
PowerShares S&P 500 Low Volatility ETF (
tracks the S&P 500 Low Volatility Index. The portfolio
comprises of stocks from the entire universe of S&P 500
stocks that have exhibited lowest historic volatility over the
last trailing twelve month period.
The ETF has been able to amass an asset base of more than $3
billion while around 1 million shares of SPLV exchange hands each
day. Also, these low volatility stocks in the portfolio of the
ETF are good dividend payers as indicated by a 12 month yield of
3%. SPLV can be considered relatively inexpensive as it charges
only 25 basis points in fees and expenses (read
Gold ETFs: Is the Sell-Off Overdone?
Naturally, the ETF has a very low realized volatility as
measured by an annualized standard deviation of just 13.76%, and
just squeaking by with double digit returns. For the same time
period, the S&P 500 has exhibited a volatility of around 20%
and generated 13.41% as returns.
Although in terms of total returns SPLV seems to lag behind
the S&P 500, however, on a risk adjusted basis the ETF has
fared better than the broader index.
In terms of holdings, the ETF has a portfolio of 100 low
volatility stocks across all sectors with 13% allocation towards
the top 10 holdings. Not surprisingly, defensive sectors like
Utilities (31%) and Consumer Staples (26.79%) account for the
maximum share of its portfolio, with firms like
Southern Company (
Kimberly Clark (
taking the top three spots.
On the other side of the coin, potentially high risk-high
return sectors like Financials and Information Technology account
for just 10.5% and 3.5% of its portfolio, respectively,
suggesting a low risk tilt even from a sector look (read
SPDR Files for Low Volatility ETFs
Presently, the ETF has a Zacks Rank of 1 or
risk outlook, meaning it could be a solid pick for investors who
have a low risk tolerance at this time.
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CLOROX CO (CLX): Free Stock Analysis Report
KIMBERLY CLARK (KMB): Free Stock Analysis
SOUTHN COMPANY (SO): Free Stock Analysis
POWERSH-SP5 LVP (SPLV): ETF Research Reports
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