Surveying Low-Volatility ETFs

July 12th at 3:40pm by Paul Weisbruch, Street One Financial

“Low Volatility” ETFs have certainly made their mark since inception in 2011, and we have seen funds such as USMV (iShares MSCI USA Minimum Volatility, Expense Ratio 0.15%) grow to $3.3 billion in assets under management in under two years.

In recent sessions on a strong rally in equities, predominantly led by higher beta segments of the market including Small-Caps and Emerging Markets for instance, USMV has seen notable redemption activity, losing approximately $350 million lately.

Year to date however, USMV has still net attracted $2.3 billion in new assets, which is quite impressive. Competing ETF SPLV (PowerShares S&P 500 Low Volatility, Expense Ratio 0.25%) has seen smaller outflows in recent sessions, with about $15 million trickling out.

SPLV has an impressive asset base as well, with $4.6 billion now invested in the fund.

The success of both of these funds could be in part a function of the equity environment managers have been faced with since 2011, which saw many money managers looking to lower the overall volatility of their portfolios, and if they could earn a respectable dividend yield while doing so, they would embrace the opportunity.

Thus, USMV and SPLV specifically have had nice runs in terms of asset growth and steady growth in day over day trading volumes, and have in essence spawned greater investor appetite for similar “Low Vol” products such as the fast growing EEMV (iShares MSCI Emerging Markets Minimum Volatility, Expense Ratio 0.25%), ACWV (iShares MSCI All Country World Minimum Volatility, Expense Ratio 0.35%), and EFAV (iShares MSCI EAFE Minimum Volatility, Expense
Ratio 0.20%), which collectively have amassed $3.8 billion.

The “Low Vol” space, which was largely an unknown concept prior to 2011, is now not only part of daily conversations in the ETF investment management community, but a fast growing space, as there are currently eighteen products that are categorized in the space, most having debuted recently. Inroads have been smaller in areas outside of “Large Cap”, as the recently launched XSLV (PowerShares S&P SmallCap Low Volatility, Expense Ratio 0.25%), XMLV (PowerShares S&P MidCap Low Volatility, Expense Ratio 0.25%), SMLV (SPDR Russell 2000 Low Volatility, Expense Ratio 0.25%), and LGLV (SPDR Russell 1000 Low Volatility, Expense Ratio 0.20%) still remain rather small in terms of asset bases.

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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