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Although markets are still hovering near all-time highs, some cracks are beginning to appear in the growth story. Stocks have experienced some uncertainty as of late and now volatility is once again a concern for a few investors.

Some are now seeking exposure to equities with some downside protection to their portfolios. As a result, the low volatility funds are gaining immense popularity as they provide improved risk adjusted returns in a choppy market.

With this trend, State Street, the second-largest ETF provider globally, has debuted two new low volatility funds. This marks State Street’s entry into the low-volatility equity space.

The two funds, the SPDR Russell 1000 Low Volatility ETF (LGLV - ETF report) and SPDR Russell 2000 Low Volatility ETF (SMLV - ETF report) both focus on low volatility stocks, but target different cap levels of the U.S. market.

This launch comes within a week after Invesco PowerShares rolled out two additional funds, expanding its low volatility ETF family (read: PowerShares Expands Low Volatility ETF Line-ups).

LGLV and SMLV in Focus

LGLV looks to track the Russell 1000 Low Volatility Index, which measures the performance of the U.S. large capitalization low volatility market (read: Do Large Cap ETFs Signal Trouble Ahead?). Holding 92 securities in the basket, the fund is widely spread across various sectors and individual companies and charges 20 bps in fees per year from investors.

The product puts nearly 21% of the assets in top 10 holdings and none of the firms holds more than 2.4% of LGLV. Heinz , General Mills (GIS - Analyst Report) and Procter & Gamble (PG - Analyst Report) occupy the top three positions in the basket.

From a sector look, consumer staples, healthcare, industrials, utilities, financials, consumer discretionary, information technology, energy, telecom services and materials make a nice mix in the portfolio.

SMLV looks to track the Russell 2000 Low Volatility Index, which measures the performance of the U.S. small capitalization low volatility market. It holds 170 securities in the basket and puts less than 20% of the assets in top 10 holdings.

Ryman Hospitality (RHP), Pool Corporation (POOL) and UNS Energy (UNS) are some of the top holdings. Unlike LGLV, the ETF is slightly skewed towards financials, and utilities, industrials, consumer discretionary and information technology round off to the next four spots. In order to gain a decent exposure, investors have to spend 25 bps in annual fees for the product.

How does it fit in a portfolio?

These products could be an interesting choice for investors seeking to take advantage of the current state of affairs in which lower risk securities are in high demand thanks to broad geopolitical risk both at home and abroad.

Low volatility products have proven beneficial for investors given their superior risk adjusted returns. The funds have attracted a lot of attention in recent months due to increased market volatility (read: Time to Invest in Low Volatility ETFs?).

The two new ETFs will be the low cost choices and smaller allocations to each of the securities could keep the portfolio balanced among the various companies, and prevent heavy concentration.

Can It Succeed?

There is still an appetite for these kinds of securities despite a good number of choices already in the space.

The large cap U.S. focused ETF faces tough competition from the most popular PowerShares S&P 500 Low Volatility Portfolio (SPLV), which has roughly $3.4 billion in AUM. The portfolio comprises stocks from the entire universe of the S&P 500 stocks that have exhibited lowest historic volatility over the trailing 12-month period.

The ETF holds over 100 stocks in total and charges investors 25 basis points a year in fees (read: Zacks Top Ranked Low Volatility ETF in Focus).

The next popular ETF is the MSCI USA Minimum Volatility Index Fund (USMV). This ETF has amassed over $1.6 billion in assets and holds 126 securities. The fund also benefits from a cheaper fee of 15 basis points annually (see more ETFs in the Zacks ETF Center).

Coming to small caps, there is currently one fund in the space – S&P SmallCap Low Volatility Portfolio ETF (XSLV). This ETF debuted on Feb 15, 2013 by PowerShares with AUM of $2.5 million. It tracks the S&P SmallCap 600 Low Volatility Index, holding 120 stocks and charging 25 bps in annual fees.

Investors should note that the low volatility funds are a recent development as these have been introduced in the last 20 months or so. Given this, the new ETFs from State Street could see big inflows and solid investor interest, making them successful products in the future.

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