The new year is still young, but investors have already been subjected to wild rides by major equity benchmarks. For example, the S&P 500 started 2015 on a downbeat note only to see all of those losses and then some erased by the end of last week, but a dismal showing this week has the benchmark U.S. index down nearly 3% year-to-date.
Low volatility exchange traded funds, including the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV) are doing what they are supposed: Outperform traditional benchmarks during times of market angst. The average year-to-date for SPLV and USMV is less than a half a percent, but that is clearly better than the 2.8% shed by the S&P 500. Notably, SPLV’s and USMV’s out-performance of the S&P 500 comes after the low volatility duo produced an average return of 18.7% last year, about 550 basis points better than the S&P 500. [Low Vol ETFs Shine in Turbulent Times]
“Within SPLV, seven of the ten largest holdings have an S&P Capital IQ Quality Ranking of B+ or above, with one with no ranking,” said S&P Capital IQ in a new research note.
Dow components Wal-Mart (NYSE: WMT) and Procter & Gamble (NYSE: PG) are SPLV’s two largest consumer staples holdings. With an allocation of 16.5%, consumer staples is the third-largest sector weight in the ETF behind financials and utilities.
P&G and Wal-Mart are also of the most reliable dividend growers among U.S. companies and although SPLV is not a dedicated dividend ETF, the fund has a trailing 12-month yield of almost 2.2%. That is 50 basis points above 10-year Treasuries and SPLV pays its dividend monthly. [A Familiar ETF Could Lead Again in 2015]
“Though a company’s strong earnings and dividend record is not necessarily indicative of it having below-average volatility, our research has found many such companies have modest risk profiles,” said S&P Capital IQ.