Risk-averse investors may not be accustomed to the past week’s rollercoaster ride, which makes the Invesco S&P 500 Low Volatility ETF (SPLV) an ideal solution.
The fund is based on the S&P 500® Low Volatility Index and seeks to invest at least 90% of its total assets in common stocks that comprise the Index. The index is compiled, maintained, and calculated by Standard and Poor’s and consists of the 100 stocks from the SP 500 Index with the lowest realized volatility over the past 12 months.
Volatility is a statistical measurement of the magnitude of up-and-down asset price fluctuations over time. The fund and the index are re-balanced and reconstituted quarterly in February, May, August, and November.
The fund’s holdings comprise mainly large-cap to mid-cap companies. As such, investors won’t be using SPLV as an ideal growth option that consists of small-caps where large market moves to the upside could be of benefit when broad markets are trending higher.
However, that’s exactly what SPLV looks to avoid. The portfolio of relatively stable large- and mid-caps means that investors won’t be subjected to sharp moves in the market, especially when things are trending lower during a big sell-off.
“Thanks to this, the fund could be a better choice for those looking for more stability in their portfolio without such big daily moves,” an ETF Database analysis said. “Additionally, it should be noted that this fund will likely outperform in a bear market and underperform broad markets in a bull market, making it a way to bet on the economic growth prospects of the country as well.”
Shock Absorption for the Long-Term
The fund recently made a list of 11 funds that investors should consider in a Kiplinger’s article.
“One popular way to measure volatility is called ‘beta,’ which tracks a security’s volatility compared to some benchmark,” the article said. “The benchmark here is the S&P 500, and the benchmark will always have a beta of 1. SPLV has a beta of 0.70, which implies the fund is about 30% less volatile than the broader market.”
“Again, this doesn’t mean SPLV will outperform during a market shock,” the article added. “During the quick COVID bear market, this low-volatility ETF underperformed the S&P 500 by about 2 percentage points in that time. It has done better over longer periods of tumult, however. Take June 2015 to June 2016, when the market’s roller-coaster movement generated a marginally negative return; SPLV was up by nearly 9%.”
For more news and information, visit the Innovative ETFs Channel.