Fund flows can be a strong indicator of investor behavior, and inflows into the Invesco S&P 500 Low Volatility ETF (SPLV) show that investors could be bracing themselves for a bumpy ride with earnings season in full swing.
The S&P 500 recently hit a record high, but the optimism could be short-lived. Rising inflation could be dampening earnings whether or not most come out beating expectations.
“After a record-breaking stock rally, analysts are starting to caution investors about a bumpy ride in the coming weeks because of stretched valuations and the impact of input cost inflation on earnings,” a Mint article acknowledged.
As such, flows continue to head into more low volatility strategy funds like SPLV. The fund seeks to track the investment results of the S&P 500® Low Volatility Index.
Easing the Pain of a Sell-Off
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.”
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