As investors search for exposure to more defensive names Amidst high market volatility and record inflation, the Invesco S&P 500 Low Volatility ETF (SPLV) and the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) are both leading Invesco’s positive ETF inflows quarter-to-date as investors search for exposure to more defensive names.
SPLV netted $2 billion in inflows year-to-date as of May 31, while SPHD brought in nearly $855 million in net capital during the same period, data from VettaFi shows. SPLV and SPHD are up 3.8% and 7.7% year-to-date as of May 31, respectively.
SPLV selects the 100 stocks from the S&P 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.
Its 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.
Nick Kalivas, Invesco’s head of factor and core equity product strategy for ETFs, attributed the increased flows into SPLV to “the turbulence we’re seeing in the markets.”
“Investors are looking for exposure, but the microenvironment we’re in is one of lots of equity volatility [and] slow growth,” Kalivas added. “The stocks in these low volatility portfolios tend to be more stable, so you’re seeing investors seek low volatility as a way to mitigate risk.”
SPHD meanwhile, is made up of the 50 stocks in the S&P 500 that historically have provided high dividend yields with lower volatility. This makes SPHD an attractive option for investors in a market where stock upside appears to be limited and dividends can offer additional income.
“The bond market has really struggled, and haven’t offered the typical ballast for a portfolio,” said Kalivas. “So, because of its yield and defensive characteristics, SPHD has attracted a lot of interest.”
“Investors are searching for yield in this environment, so with SPHD, you have a strategy that’s paying a distribution that’s above the 10-year Treasury, so it’s competitive in terms of its yield,” he added. “When it picks dividend yield in the portfolio, it’s using a low volatility overlay.”
Both SPLV and SPHD have a portfolio with over 20% focused on the safe haven utilities sector. The consumer staples, healthcare, and real estate sectors also factor heavily into both ETF portfolios.
For more news, information, and strategy, visit the Innovative ETFs Channel.
