In a year marked by wider market oscillations, investors are filling their core portfolio positions with low-volatility exchange traded fund strategies.
Investors have funneled over $5 billion into low-volatility ETFs globally over the first two months of the year, including a record $3.9 billion in February, reports Jackie Noblett for Ignites.
Low-vol ETF strategies continue to entice investors. So far in March, the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV), which selects low-volatile stocks based on variances and correlations along with other risk factors, saw $574.8 million in net inflows, according to ETF.com. The PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), which simply tracks the 100 least volatile stocks taken out of the S&P 500, also saw $206.3 in inflows this month.
Fund sponsors attribute the sudden growth in low-vol strategies to retail investors and advisors shifting large chunks of their portfolios away from traditional cap-weighted stock ETFs. Instead, more investors have warmed up to low-vol ETFs that promise to diminish portfolio volatility through stocks that exhibit lower price swings.
The strategy has been working out so far this year as volatility depressed more growth-oriented stocks. Year-to-dated, USMV rose 3.5% and SPLV gained 3.1% while the S&P 500 Index dipped 0.4%.
Potential investors should be aware that since these low-vol ETFs focus more more slow and stable companies, the low volatility strategy may underperform more growth-oriented stocks if the markets turn around. However, sponsors and analysts argue that the money flowing into low-vol strategies could stick this time as investors look for long-term risk mitigation.