We haven’t seen short term trading volatility like this perhaps in several years, and the tone of the market has certainly not been of the BTFD nature lately even in Large Cap U.S. equities like the S&P 500 much less the Mid or Small Cap segments of the equity markets, but one where “old support has become new resistance” at least from a technical standpoint.
Long forgotten at least by some it seems, are the year-end projections that we saw forecasting an SPX above 2000 or perhaps even higher than 2200 depending on whom you spoke with. This said, the last time we were in “protection” mode like this, “Low Volatility” funds became very, very popular, and we expect a similar turn of events this time around.
Those that correctly anticipated a short term drawdown in global equities, especially in U.S. equity markets may very well be embracing the opportunity to deploy cash sub SPX 1900 in various beaten down sectors. This said, these same portfolio managers are likely conscious that at the very least short term volatility and perhaps mid and longer term volatilities have increased however, and additional volatility due to calendar event risk like earnings season at the very least, future FOMC actions or inactions, as well as “new risk” such as the confluence of daily Ebola related headlines could persist at least through year end.
In the past from general observation when equity markets quickly and suddenly give back the bulk of a trading year’s gains inside of a few sessions or a week or so, “Low Volatility” equity based funds often catch a good amount of attention.
The reasoning is perhaps a certain segment of investors like to be long, or get long equities, but in a way where they are “tiptoeing” into exposure as opposed to going “all in.” SPLV (PowerShares S&P 500 Low Volatility, Expense Ratio 0.25%) is the largest ETF in this “Low Vol” category, with about $4.5 billion in AUM currently.
In recent sessions the fund has pulled in about $17 million in new assets, and year to date the fund has steadily pulled in about $477 million now. USMV (iShares MSCI USA Minimum Volatility, Expense Ratio 0.15%), the second largest fund in the space, has reeled in more than $350 million, so the trend is certainly not relegated to SPLV.
USMV notably has $2.8 billion in AUM now. Others worth watching in what may be a new trading environment for equities at least in the U.S. space include SIZE (iShares MSCI USA Size Factor, Expense Ratio 0.15%) and XSLV (PowerShares S&P SmallCap Low Volatility, Expense Ratio 0.34%) and XMLV (PowerShares S&P MidCap Low Volatility, Expense Ratio 0.25%), as well as a host of others in what looks like a rapidly expanding space in terms of ETP product innovation.
PowerShares S&P 500 Low Volatility Portfolio
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.
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