A Defensive ETF Play for Increased Uncertainty, Rising Rates Ahead

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Consequently, ETF investors may look to the targeted XRLV, which overweights industrials 25.1% and health care 18.8%. Moreover, the low-vol, ex-rate sensitive ETF excludes utilities, only includes a 1.3% tilt toward yield-generating telecoms and holds a smaller 14.7% tilt toward consumer staples. In contrast, the more popular PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) includes a heavy 21.6% position in consumer staples and 21.1% in utilities.

However, potential investors should keep in mind that XRLV is still rather thinly traded, showing a 24,500 average daily volume, according to Morningstar data. Consequently, traders should implement limit orders to better control trades and Advisors executing large orders can also turn to alternative liquidity providers.

“More often than not, smaller ETFs offer very limited volume and stated bid/ask spreads wider than those of the larger ETFs,” Chris Hempstead, Head of ETF Sales for KCG, told S&P Capital IQ. “Investors with interest in ETFs with lower volume and wider spreads could benefit by simply making a call to the capital markets team of the issuer or by calling an ETF trading desk to determine true liquidity.”

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PowerShares S&P 500 ex-Rate Sensitive Low Volatility Portfolio