Low volatility ETFs also are not as dull as previously believed. For example, SPLV now allocates over 19% of its combined weight to technology and consumer discretionary stocks and cyclical industrials are the ETF’s largest sector allocation at 17%. As Invesco PowerShares notes, credit spreads could also factor into bringing investors back to low volatility funds.
“Credit spreads — the difference in yield between corporate securities and US Treasuries — are a third factor influencing equity volatility,” according to PowerShares. When the cost of corporate debt increases, it becomes more expensive for companies to access capital. Investment costs can rise as a result, which can make it difficult to return money to shareholders. By contrast, falling credit spreads, which imply lower corporate yields, make for less-costly access to capital. It then becomes easier to return money to shareholders.”
Year-to-date, SPLV has added nearly $97 million in new assets, but over the past 90 days, that figure has swelled to $178.1 million.
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