At the sector level, XSLV is not excessively weighted to utilities and consumer staples stocks, two sectors often believed to be the cornerstones of low volatility ETFs. Actually, those groups are two of the ETF’s smallest sector allocations. Rather, financial services, industrial and real estate stocks combine for nearly two-thirds of XSLV’s weight. That said, the fund’s methodology is sector agnostic.
“As an added benefit, low-volatility investment strategies effectively filter out the riskiest and least profitable stocks in the market, which have historically offered terrible returns,” said Morningstar. “Outside of this speculative segment of the market, the relationship between volatility and returns has been weak. Although it isn’t a strong predictor of returns for most stocks, past volatility is a good predictor of future volatility and downside performance, at least in the short term. This risk reduction is the principal source of low-volatility stocks’ attractive risk-adjusted performance.”
XSLV is up 13% over the past 12 months.
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