Experienced investors know that the objective of low volatility exchange traded funds isn’t necessarily to capture all of a bull market’s upside, but rather to offer some protection when markets swoon.
It appears that since the November rebalance of its underlying index — the S&P 500 Low Volatility Index — the Invesco S&P 500 Low Volatility ETF (SPLV) is accomplishing its objective of delivering some durability when volatility increases.
“Since the last rebalance for the S&P 500® Low Volatility Index on Nov. 19, 2021, the market has experienced gyrations not seen since February 2021. The S&P 500 declined 6.44% since the November rebalance, with daily changes of greater than 1% almost half (44%) of the time. Low volatility strategies are designed to smooth out the path of the broader market at all times, but their work is most visible in times of stress,” according to S&P Dow Jones Indices. “The S&P 500 Low Volatility Index is down just 1.28% as of Feb. 17, 2022.”
The $9.06 billion SPLV turns 11 years old in May, so it’s seen its fair share of various market environments. Over that substantial time period, much of SPLV’s performance has been derived from sector attribution. While the fund and its index are sector-agnostic, some sectors are consistently less volatile than others.
With that in mind, it’s worth noting that the fund is currently light on some sectors that have been volatility offenders since last November.
“The Information Technology and Consumer Discretionary sectors increased by 2% and 3%, respectively, while the volatility of the remaining sectors was either flat or down (in Energy’s case, by a whopping 9%). But the overall volatility of the S&P 500 rose from 12% to 14%,” notes S&P Dow Jones.
SPLV currently allocates less than 7% of its weight to the technology and consumer discretionary sectors, and those are the fund’s third- and second-smallest sector exposures. The fund has no energy exposure; energy is the only one of the 11 GICS sectors not represented in the ETF. As for what looms large in SPLV, it’s some familiar faces.
“Health Care (3%) and Consumer Staples (2%) both added to their already significant presence in Low Volatility. The additions came at the expense of Industrials (-3%), Technology (-2%), Utilities (-1%), and Financials (-1%),” concludes S&P Dow Jones.
Consumer staples and utilities stocks combine for over 47% of SPLV’s roster.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
