Joel Dickson, a senior investment strategist at Vanguard Group, which doesn’t offer low-volatility ETFs, told Bloomberg that these stocks can lag in bull markets such as the 1990s.
“As an investor you have to be willing to stomach periods when this strategy gets killed,” Dickson said.
Still, low-volatility ETFs have appealed to investors burned twice in the last 13 years, by the dot-com bust and the 2008 credit crisis.
SPLV holds the 100 stocks from the S&P 500 with the lowest realized volatility over the past year. The ETF allocates more of its portfolio to stocks with lower volatility. [Low-Volatility ETFs: Strong Demand, Performance with Downside Protection]
SPLV gained 2.2%, adjusted for price swings, since it was created on May 5, 2011, compared with a 1.1% return for the S&P 500, according to data compiled by Bloomberg.
Other low-volatility ETFs include iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV), PowerShares S&P International Developed Low Volatility (NYSEArca: IDLV) and iShares MSCI Emerging Markets Minimum Volatility (NYSEArca: EEMV).
State Street (NYSE: STT) recently launched its first low-volatility ETFs: SPDR Russell 2000 Low Volatility ETF (NYSEArca: SMLV) and SPDR Russell 1000 Low Volatility ETF (NYSEArca: LGLV).