With the movement to smart beta exchange traded funds in full bloom, led in large part by institutional investors, it pays to zero in on exactly which genres of smart beta funds investors are embracing.
Low volatility, dividend and fundamentally-weighted ETFs are among the key drivers of asset growth for smart beta ETFs. PowerShares, the fourth-largest U.S. issuer of ETFs, brought the first low volatility ETF to market in 2011, the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV). Today, SPLV is home to almost $5 billion in assets under management and PowerShares remains one of the leaders in the low volatility category. [Relax With Low Vol ETFs]
Invesco PowerShares Managing Director Dan Draper and Vice President of ETF Product Management John Feyerer joined ETF Trends publisher Tom Lydon to discuss the firm’s low volatility offerings and the advantages of that investment strategy.
“If you look on a historical basis, volatility is low right now relative to a multi-decade cycle,” said Draper. “Many demographics, in particular baby boomers, have been told in preparation for retirement, move from riskier equity-type assets to fixed income. That would compound your risk in the environment we’re in. They’re (baby boomers) almost having to be overweight equities for the yield. At the same time how can they reduce risk in their portfolios? Low volatility strategies are a great way of looking at that.”
SPLV, which has a trailing 12-month yield of 2.33% and pays a monthly dividend, can be viewed as PowerShares’ flagship low volatility product. Indicating that investor demand for “low vol” ETFs remains robust, SPLV has hauled in $553.4 million in new assets over the past year, a total surpassed by just two other PowerShares ETFs, according to issuer data.
The financial crisis “is one of those for events for investors that lived through that, it’s going to be part of their psyche for the rest of their lives,” said Feyerer. “When you look at the math involved from digging out from significant portfolio drawndowns, you start to look as a low volatility strategy as a core portfolio holding.”
Investors look to use a low volatility ETF as a core holding while generating income can turn to the PowerShares S&P 500 High Dividend Portfolio (NYSEArca: SPHD), “is composed of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility,” according to PowerShares. The ETF has a trailing 12-month yield of 3.33%.
Like SPLV, SPHD pays a monthly dividend. Utilities, financials and consumer staples combine for nearly 56% of the fund’s weight. The ETF has added more than $440 million in new assets over the past year. [The Right Dividend ETF for the Times]
This year, PowerShares has added to its low volatility lineup with the introductions of the PowerShares ex- Rate Sensitive Low Volatility Portfolio (NYSEArca: XRLV) and the PowerShares Europe Currency Hedged Low Volatility Portfolio (NYSEArca: FXEU).