New entrants to the low volatility exchange traded funds arena face well-established competition by way of the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV).
So those new entrants better offer something, well, new. The ALPS Sector Low Volatility ETF (NYSEArca: SLOW), which debuted today, does bring something new to the low volatility ETF table. SLOW tracks the S-Network Sector Low Volatility Index, which applies equal weighting not once, but twice. That means SLOW’s 45 holdings are equally weighted on an individual basis and at the sector level.
SLOW’s holdings hail from the S&P 500. From there five lowest volatility stocks in each of the nine GICS sectors are selected. The dual equal-weight methodology “provides diversification while avoiding sector biases,” according to ALPS.
SLOW, which carries an annual expense ratio of 0.4%, assigns weights of 11.11% to each of the nine GICS sectors. Even with the equal weighting, SLOW’s utilities weight is well above those found in SPLV and USMV. However, SLOW’s consumer staples exposure is less than its rivals.
The ETF’s top 10 holdings range in weight from 2.31% to 2.42%. That group includes McCormick (NYSE: MKC), AT&T (NYSE: T), CVS (NYSE: CVS) and General Mills (NYSE: GIS). [Low Vol ETFs and the Utilities Sector]
“Rather than investing in pure market-cap indexes, which are usually tilted towards specific sectors, our equal sector weighting methodology may provide a better foundation for building diversified portfolios,” said ALPS Senior Vice President and Director of Exchange Traded Funds in a statement. “As a result, investors and advisors may achieve better risk adjusted returns.”
The S-Network Sector Low Volatility Index has a P/E ratio of 18.83, a price-to-sales ratio of 1.58 and a beta of 0.73, according to ALPS data. The weighted average market value of the index’s constituents is $59.8 billion.
SLOW is not the only new ETF from ALPS to launch today. The ALPS Sector Leaders ETF (NYSEArca: SLDR) debuted today and is a factor-driven ETF with an emphasis on growth and quality. SLDR has a “High Conviction Tilt Towards Quality and Growth: provides a high quality overlay, from which the 5 highest growth securities are selected from each of 9 sectors of the market,” according to ALPS. [New ETF Finds Sector Leaders]
SLOW Index Sector Breakdown
Chart Courtesy: ALPS