Low Volatility Investing Still Holds Appeal

With the S&P 500 at all-time highs and growth stocks leading the charge, it’s understandable some investors aren’t concerned about market volatility. As a result, they aren’t paying much attention to low volatility stocks and ETFs.

However, experienced market participants know volatility trends can change course on a dime and do so without warning. One way of looking at that scenario is that an ounce of prevention is worth a pound of cure. The prevention is available with ETFs such as the Invesco S&P 500 Low Volatility ETF (SPLV).

SPLV is significantly underweight communication services, consumer cyclical, and technology stocks relative to the S&P 500. In the Invesco ETF’s favor, it's living up to its low volatility billing, as its annualized volatility to start 2024 is just 8.7%. That's about 300 basis points below that of the S&P 500.

More Low Volatility ETF SPLV Perks

SPLV follows the S&P 500 Low Volatility Index. That's a basket of the 100 S&P 500 members with the lowest trailing 12-month volatility. To be precise, the ETF has 101 holdings. None of them exceeds a weight of 1.40%, confirming single-stock risk is low with this fund.

Among the fund's holdings that drive more near-term upside for the ETF, Warren Buffett’s Berkshire Hathaway (BRK.B) is a name to remember. That’s SPLV’s second-largest holding, behind only Dow component McDonald’s (MCD).

“The Warren Buffett-led conglomerate has climbed more than 10% this year, outperforming the S&P 500. Wall Street sees more upside ahead. While just two out of every five analysts surveyed by FactSet have a buy rating on the stock, the average price target suggests it can advance another 6.6%,” reported Alex Harring for CNBC.

Perhaps not surprisingly, the consumer staples sector is SPLV’s largest sector exposure, at 23.14%. While the ETF and its underlying index are sector-agnostic, staples often rank as one of the least volatile among the 11 GICS sectors.

Count Costco (COST) among the staples stocks that could add to SPLV's upside. The company, which recently announced the hiring of CFO Gary Millerchip, accounts for 1.1% of the fund's roster. Goldman Sachs analyst Kate McShane said Costco bringing in an outsider in Millerchip could be a positive.

“We see a new external hire possibly bringing in ideas based on previous experience which could include a focus on building out the company’s digital, media and/or fulfillment businesses,” she observed in a note to clients. “While this conclusion might appear to be a big leap given Costco’s ecommerce business is still relatively small as a percentage of sales, we think the [buildout] of these alternative businesses could be the way of the future for those selling [groceries].”

For more news, information, and analysis, visit the Innovative ETFs Channel.

Read more on ETFTrends.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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