In a market led by growth stocks, some investors might be glossing over defensive fare and low volatility exchange traded funds. However, those ETFs remain relevant, because history confirms markets can turn on a dime and leadership can rapidly change. With that in mind, the Invesco S&P 500 Low Volatility ETF (SPLV) could be a consideration for investors looking to augment growth/tech heavy portfolios with less volatile fare.
To its credit, the fund is higher by 3.10% year to date. That’s impressive when considering the ETF’s portfolio allocates just 11% of its weight to growth stocks and features a tech weight of just 7.58%.
SPLV’s 2024 sturdiness is all the more impressive when acknowledging the fund’s methodology. Namely, its 101 holdings are the least volatile members of the S&P 500 on a trailing 12-month basis. In other words, boring can be rewarding.
Recent Adjustments to Low Volatility ETF SPLV
SPLV follows the the S&P 500 Low Volatility Index, which rebalances in February, May, August, and November. Between the November and February adjustments, the index jumped 11.3%. That’s pretty good work for a low vol gauge in a relatively short time frame.
The ETF’s showing during that period is all the more remarkable when considering volatility was benign over that span. Many low volatility ETFs, including SPLV, can be subject to underperformance when market turbulence is low, while they show their mettle when volatility is elevated. One of the reasons for the subdued market setting is that no sectors experienced upticks in volatility between the November and February rebalances of SPLV’s index.
“The widespread decline in volatility continued the trend that took place throughout most of 2023. Measured in absolute terms, the sectors with the largest declines in volatility were Consumer Discretionary, Communication Services and Materials, which dropped by 3.6%, 2.9% and 2.7%, respectively. Industrials was the only sector with an increase in volatility, rising from 15.9% to 19.0%,” according to S&P Dow Jones Indices.
Industrials’ increased volatility may have been largely attributable to company-specific issues at Boeing (BA), which is not a member of the SPLV lineup. The ETF allocates 14.06% of its weight to industrial stocks, its third-largest sector exposure.
February Relance Not Affecting SPLV Performance
Due to the aforementioned downtrend in volatility, SPLV’s February rebalance brought fewer changes than usual. But that’s not hindering performance.
“Consumer Staples lost 2.4%, the most of any sector, although it retained its position as the highest-weighted sector, at 23.4%. The largest recipients were Information Technology and Health Care, receiving 1.8% and 1.4%, respectively. Materials received a 1.0% allocation, resulting in all 11 GICS sectors now being represented in the S&P 500 Low Volatility Index,” added S&P Dow Jones.
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