When it comes to exchange traded funds emphasizing low volatility stocks, the ETFs that garner the most attention are the large-cap focused PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV).
Those ETFs, home to a combined $7.8 billion in assets under management, have delivered more than admirable performances this year. SPLV, the largest low volatility ETF, is up 14.6% while USMV is higher by 13.9%, both comfortably outpacing the 12% returned by the S&P 500.
The advantages of low volatility ETFs were on display last month when, as volatility spiked, SPLV and USMV delivered as advertised. The S&P 500 would finish a rocky October higher by 3.8%, a far cry from the 5.6% returned by SPLV. [Turbulent Market Sends Investors to Low Vol ETFs]
Investors should note the “low vol” advantage is not reserved exclusively for large-caps. The overlooked PowerShares S&P MidCap Low Volatility (NYSEArca: XMLV) proves as much.
Mid-caps finished October in fine form with the iShares Core S&P Mid-Cap ETF (NYSEArca: IJH) gaining 5%, but why take 5% when XMLV, the lower volatility option, offered an October return of nearly 8%?
XMLV tracks the performance of the S&P MidCap 400 Low Volatility Index, which tracks 80 of the least volatile stocks from the S&P MidCap 400 Index over the last 12 months and weights holdings based on the securities’ inverse volatility, so the least volatile securities have the highest weighting. [Low Volatility Mid, Small-Cap ETFs Debut]
In the past, SPLV has been criticized for being a utilities ETF in disguise, but that criticism misses the mark because when the ETF rebalances, it is sector weights can shift depending upon broader market volatility. The same goes for XMLV, which like SPLV, features financial services as its largest sector weight.