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ETF Chart of the Day: Loving Low Volatility


It feels like it has been awhile since “Low Volatility” funds have been spoken about at length even though they are clearly an area of great interest among advisors and institutions judging from the growth of the funds over time.

USMV (iShares MSCI USA Minimum Volatility, Expense Ratio 0.15%) is once again on our radar here at least thanks to recent creation activity in the fund, adding >$220 million in recent sessions, as the fund continues to break out to new highs.

The fund has $2.33 billion in assets under management now, and averages about 466,000 shares traded daily. Recent performance has been boosted by the rally in Consumer Staples stocks (we have talked about XLP,
SPDR Consumer Staples, Expense Ratio 0.18% call buying for a few weeks now) as we highlight USMV’s portfolio exposure to names like PEP (1.55%), GIS (1.54%), and WMT (1.50%) for instance. The recent inflows in USMV continue a trend of impressive asset flow year to date, as the fund has now pulled in $1.28 billion in 2013.

Related fund, SPLV (PowerShares S&P 500 Low Volatility, Expense Ratio 0.25%) by comparison has attracted $281 million year to date, and an impressive number in its own right, one can quickly see the notable difference
in the two totals. SPLV remains the larger of the two funds that target the U.S. Equity “Low Volatility” space, with $3.98 billion in assets under management as well as averaging considerably higher daily volume than USMV (1.25 million shares in ADV).

One might expect this given the fund’s first mover advantage and its early May of 2011 launch, while USMV entered the marketplace in October of 2011. SPLV is also breaking out in terms of price action today as well with top weightings in names including JNJ (1.42%), NEE (1.30%), ED (1.28%), DTE (1.27%), and K (1.27%).

What is notable is that SPLV has the lion’s share of its portfolio exposure weighted 29.81% to Utilities and 20.26% to Consumer Staples, while USMV has very different makeup (17.63% to Healthcare, 16.59% to Consumer Staples, 10.67% to Industrials, 9.6% to Financials, and 8.26% to Utilities).

So depending on which specific sectors within the U.S. equity market that the investor favors and wants specific exposure to, these will likely be deciding factors in terms of selecting between the two funds.

In summary, we always find inflows in “Low Vol” funds something to take note of especially when the overall market is rallying to new highs as it is currently as it reflects institutional appetite for U.S. equities, albeit the ones that have tended to display less volatility over time. Some may equate this to “tiptoeing” into equities if not just wading into the water with tried and true names despite the surrounding raging bull market atmosphere.

PowerShares S&P 500 Low Volatility

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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