None of USMV’s 184 holdings command more than 1.6% of the ETF’s weight. Five of the ETF’s top 10 holdings are members of the Dow Jones Industrial Average. Healthcare is USMV’s largest sector exposure at 18.5% and although it is a minimum volatility fund, technology is the second-largest sector weight at over 16%.
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.
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.
Looking at USMV’s chart, “you can see that the price is trading near the support of the 200-day moving average, which is a common long-term technical level that traders use for placing buy and stop orders. Notice how the moving average propped up the price after it pulled back from the summer high of $46.62. Active traders will likely expect the upward momentum to continue from here and protect their long positions by placing stop-loss orders just below $44.70,” reports Investopedia.
For more information on the low-vol strategy, visit our low-volatility category.