Consequently, Lee argues that the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV) is a good fit as a core equity allocation since it “can be expected to be about a third less volatile than the broad market.” However, due to their tilt toward conservative picks, low volatility stocks will underperform during short-term bull rallies. [Low-Volatility vs. High-Beta ETFs: New Secular Bull Market?]
USMV’s low-volatility portfolio keeps stock weights between 0.05% to 1.5% of the portfolio, sector weightings within 5% of the market-weighted index and a one-way turnover of 10%. The ETF has a 0.15% expense ratio.
Alternatively, investors can consider the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), which weight the 100 least-volatile S&P 500 stocks by the inverse of their volatility – the least volatile stocks have a heavier weighting. SPLV has a 0.25% expense ratio.
Moreover, investors can find low-volatility international exposure with the PowerShares S&P Emerging Markets Low-Volatility Portfolio (NYSEArca: EELV) and the PowerShares S&P International Developed Low Volatility Portfolio (NYSEArca: IDLV). EELV has a 0.29% expense ratio and IDLV has a 0.25% expense ratio.
The iShares MSCI EAFE Minimum Volatility ETF (NYSEArca: EFAV) and iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEArca: EEMV), which come with an expense ratios of 0.20% and 0.25%, respectively, utilize the more complex “minimum variance” methodology in determining low volatility stocks. Additionally, investors can take a look at the all encompassing iShares MSCI All Country World Minimum Volatility (ACWV), which has a 0.34% expense ratio.
For more information on the low-volatility strategy, visit our low-volatility category.
Max Chen contributed to this article.