Roiled by various headlines out of Europe, including but not limited to speculation Greece is headed out of the Eurozone and Switzerland’s decision to stop pegging its franc to the euro, developed market stocks have started 2015 in less-than-impressive fashion.
With U.S. stocks, investors are finding some comfort with popular low volatility exchange traded funds, such as the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV), both of which easily topped the S&P 500 last year. [Low Vol ETFs Outperform During Market Jitters]
Investors can extend the low volatility approach to international markets with several well-known ETFs, including the PowerShares S&P International Developed Low Volatility Portfolio (NYSEArca: IDLV). One of IDLV’s advantages is its relatively low correlation to U.S. stocks and the SPDR S&P 500 ETF (NYSEArca: SPY). IDLV’s correlation to SPY is just 71%.
“The standard deviation is great. For IDLV it is .7265%. For SPY, it is 0.7420% for the same period. SPY usually beats other ETFs in this regard, so a lower volatility level is very impressive. Because the ETF has fairly low correlation for equity investments and a low standard deviation of returns, it should do fairly well under modern portfolio theory,” according to a post on Seeking Alpha.
IDLV tracks the S&P BMI International Developed Low Volatility Index, which outpaced the MSCI EAFE Index last year, according to PowerShares data.
IDLV has remained somewhat sturdy compared to Europe-focused ETFs because the PowerShares offering’s weight to Eurozone economies is relatively light. Perhaps not surprisingly, the ETF features no exposure to the PIIGS nations and current overal Eurozone exposure is just 8.6%, which is entirely devoted to France and Germany. IDLV’s Eurozone weight is down 280 basis points from the third quarter of 2014. [International Low Vol ETF Shows Its Mettle]
The PowerShares offering allocates just over 32% of its combined weight to Canada and the U.K., but as a low volatility ETF, the fund’s energy weight is low despite its large combined weight to British and Canadian stocks. Energy names account for just 2.6% of IDLV’s weight.
Although slightly below that of the MSCI EAFE Index, IDLV’s trailing 12-month dividend yield of 3.3% is certainly respectable, the result of nearly 47% of the ETF’s combined weight being allocated to Canada, the U.K. and Australia.
Those are three of the top ex-U.S. developed market dividend destinations. In fact, the U.K. is the second-largest developed markets dividend payer after the U.S. and Australian dividends are among the fastest growing in the developed world. [Embracing Australia ETFs]
PowerShares S&P International Developed Low Volatility Portfolio
