PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) has been one of the most successful ETFs launched over the past year, gathering nearly $2 billion in a risky market that’s seemingly tailor-made for its conservative strategy.
SPLV has delivered a total return of 14.8% for the trailing 12 months, compared with 9.1% for the S&P 500, according to Morningstar. Year to date, the ETF is up 7.3% versus a 9.1% gain for the U.S. blue-chip index. [Low-Volatility ETFs to Protect Against Market Gyrations]
Other low-volatility ETFs for U.S. stocks include iShares MSCI USA Minimum Volatility Fund (NYSEArca: USMV) and Russell 100 Low Volatility ETF (NYSEArca: LVOL). [Low-Volatility ETFs: Wait For Full Market Cycle?]
Not surprisingly, these “low-vol” funds tend to outperform the S&P 500 in risk-off bouts. For example, SPLV held up much better during the August 2011 sell-off and during the recent May pullback.
“For investors determined to stick with stocks but not loving the latest Maalox-inducing moments, plugging into low-volatility ETFs can be an intriguing solution,” writes YCharts editor Carla Fried at Forbes.com.
SPLV tracks a specialized index of the 100 stocks from the S&P 500 with the lowest volatility over the past year. Volatility is a measure of how much a security tends to jump around in price.
For low-vol international stocks, investors can take a look at iShares MSCI All Country World Minimum Volatility (NYSEArca: ACWV). [Global Low-Volatility ETF For Downside Protection]
“During this spring’s sell off, the low-volatility ETF lost less than half as much as the ETF that tracks the overall MSCI All Country World index,” Fried said. “Clearly, the low-volatility approach has delivered in down markets, as you’d expect. But in up markets … a low-volatility portfolio isn’t going to be the pacesetter.”
The editor also notes that strong tilts to value stocks over growth in low-vol ETFs lead to “some funky sector weightings” and that the funds “shouldn’t take over your portfolio.”
As of June 19, SPLV had 28.9% in consumer staples and 31.7% in the utilities sector, according to manager Invesco PowerShares. SPDR S&P 500 ETF (NYSEArca: SPY) has 11.2% in consumer staples and only 3.7% in utilities. [Utilities ETFs Outperforming on Stability, Dividends]
The chart below shows the relative performance of the low-volatility fund, SPLV, versus the S&P 500 ETF, SPY.
