ETF Chart of the Day: Turn Down the Volatility

We have mentioned the bids that have been around in what tend to be dividend paying segments of the U.S. equity market and accompanying creation activity in XLU (SPDR Utilities Select Sector, Expense Ratio 0.18%) and IYR (iShares U.S. REIT, Expense Ratio 0.48%) for instance, where both XLU and IYR have each pulled in about $1 billion in new assets in 2014.

Utilities, and REITs to some degree tend to come up in conversations also when “Low Volatility” ETF products are being spoken about, with the largest fund in this category in terms of assets under management being SPLV (PowerShares S&P 500 Low Volatility Portfolio, Expense Ratio 0.25%, $3.9 billion in AUM, 2.53% Yield).

USMV (iShares MSCI USA Minimum Volatility, Expense Ratio 0.15%, 2.31% Yield) is the second largest fund in the category with $2.46 billion in assets under management, and a quick examination of the holdings of both funds shows that USMV has a lower tilt to Utilities (8.15%) and a small slice invested in REITs (2.8%).

SPLV looks much different from a sector allocation standpoint, with its highest sector weighting being Utilities (24.49%) and no weighting at all to REITs.

Both funds are worth a look to those portfolio managers looking to build a “Low Vol” equity buffer position into their portfolios, and it pays to do some due diligence in terms of what specific sector exposure the buyer may want, before choosing a fund.