Low volatility has gained attention again in recent weeks as investors braced for earnings reports and heightened market turbulence.
The $10.2 billion Invesco S&P 500 Low Volatility ETF (SPLV) has seen a pop in flows in April, hauling in $372 million in net flows month to date as of April 25. The fund took in an impressive $2.6 billion in 2022 but saw flows reverse during the first three months of 2023 as investors looked to capture returns in some of the growthier segments of the market.
“Some investors have increasingly become more cautious heading into earnings season,” Todd Rosenbluth, head of research at VettaFi said. “SPLV provides a risk-off approach to large-cap stocks.”
On Tuesday, low volatility was the only large-cap segment to avoid a loss as the S&P 500 had its worst day in over a month, driven by First Republic Bank (FRC) nearing the brink of collapse, according to S&P Dow Jones Indices. First Republic yesterday reported a drop in client deposits in the first quarter totaling $10 billion, significantly worse than expected.
Despite receiving a $30 billion lifeline from 11 of the biggest banks last month, shares of First Republic plummeted on Monday on the company’s earnings release and continued to decline Tuesday, dropping 54% over five days. The bank’s stock has plummeted 95% year to date.
While SPLV is among the largest and best-known ETFs offering exposure to the low volatility factor, Invesco has four other funds that offer a similar strategy but with different exposures. The other funds in the low volatility suite include the Invesco S&P MidCap Low Volatility ETF (XMLV), the Invesco S&P SmallCap Low Volatility ETF (XSLV), the Invesco S&P International Developed Low Volatility ETF (IDLV), and the Invesco S&P Emerging Markets Low Volatility ETF (EELV).
Invesco’s suite of low-volatility ETFs uses a pure approach to access the low-volatility factor, allowing the funds to rotate out of the most volatile stocks and sectors at each quarterly rebalancing. The methodology offers exposure to the least volatile stocks over the past 12 months within the parent index, according to Invesco.
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