ERW’s underlying index, the VelocityShares Equal Risk Weighted Large Cap Index, “uses an optimization process to assign equal risk weighting” to each S&P 500 member. Historical and implied volatilities are combined. In terms of dollar weights by sector, ERW is underweight energy, financial services, technology, telecom and industrials relative to the S&P 500. The ETF is overweight materials, consumer discretionary, staples, health care and utilities.
There is no doubt that investors have embraced “low vol” ETFs, particularly in risk-off environments. ERW’s more advanced approach gives investors one more risk-mitigating alternative to consider when evaluating volatility reduction strategies.
ETF Trends editorial team contributed to this post.
ETF Trends editorial team contributed to this post.