When investors think of market beating ETFs, low volatility ETFs probably don’t come to mind. However, products in this category have actually been able to trounce markets and avoid big drawdowns as well.
This historical outperformance could make these ETFs solid picks for all stripes of investors, and especially those uncertain of the market’s outlook in the near term. After all, there has been some weak data as of late, and stocks have been rather sluggish in the past few summers (see
Three Low Volatility ETFs for Stormy Markets).
These trends suggest that now could be an excellent time to invest in lower volatility securities, and clearly many investors have jumped on this bandwagon. In fact, two low volatility funds are both in the
top ten for asset inflows in the year-to-date time frame, adding a combined total of nearly $4.5 billion in just the first four months of the year.
Low Volatility ETFs in Focus
Currently, investors have a couple of options in the low volatility space, but two of the most popular come to us from iShares and PowerShares. Their two funds, respectively the
MSCI USA Minimum Volatility Index Fund ( and the USMV - ETF report) S&P 500 Low Volatility Portfolio (are both great picks for investors seeking to gain some low volatility exposure, and they have both been able to beat out the market in the past six month time frame: SPLV - ETF report) ,
Both funds have billions in assets and see great volume on a regular basis, so there isn’t that much disparity on the popularity front (though SPLV has more in both). There is, however, a gap when it comes to holdings and expenses between these ultra-popular ETFs.
USMV is a cheaper choice, charging investors just 15 basis points a year in fees for its exposure, while holding just over 125 companies. Meanwhile, SPLV charges 25 basis points a year and has just 100 stocks in its basket.
In terms of sector exposure, utilities and consumer staples account for over half of SPLV, while they make up just 25% in USMV. Large caps are the focus of both, while growth stocks are obviously not a big part of either product (see
3 ETF Strategies for Long Term Success).
Still, both have shown an ability to beat out markets and provide investors with great risk-adjusted returns. Due to this, either one could be worth a closer look, especially if markets face turbulence once again in the summer months.
For more on low volatility ETFs, watch our short video on the topic below:
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