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Some ETFs Show Investors Conservatively Playing Rally


U.S. stocks continue to hover around record highs. The S&P 500 and NASDAQ Composite are up 5.5% and 6%, respectively, over the past month, but those factoids do not mean all investors are taking on significant risk with exchange traded funds.

Even with U.S. stocks extending gains, investors continue to pile into low volatility ETFs and, in some cases, ETFs offering downside protection. On Monday, 160 ETFs hit all-time highs, including several low volatility ETFs such as the PowerShares S&P 500 Low Volatility Portfolio (SPLV) and the iShares MSCI USA Minimum Volatility ETF (USMV) .

Both ETFs have lagged the S&P 500 over the past month, posting an average gain of 4.3%, but that has not deterred investors. Over that period, only the Powershares QQQ (QQQ) among PowerShares ETFs has added more new assets than the $193.4 million that has flowed into SPLV, according to issuer data.

Ongoing favoritism for low volatility could be a sign that the surge in broader market witnessed in the first half of October is still fresh on investors’ mind. Although stocks ended October in fine form, low volatility showed their mettle last month with SPLV and USMV each gaining more than 5% compared to a 4.7% gain for the S&P 500. [Low Vol ETFs Shine in October]

SPLV takes the 100 least volatile stocks from the S&P 500 while USMV takes into account variance, correlation and sensitivities to risk factors. That should be interpreted to mean an excessive weight to the utilities sector. While the utilities sector has at various points during SPLV’s three and a half year lifespan been the ETF’s larges sector weight, that is not the case today. As of Nov. 21, SPLV allocated 32.5% of its weight to financial services stocks, nearly double its weight to utilities names.

Another ETF also underscores the skittishness being displayed by some investors. The PowerShares S&P 500 Downside Hedged Portfolio (PHDG) helps investors maintain long equity during turbulent markets by holding positions in CBOE Volatility Index futures contracts.

That combination helped PHDG return 3.7% and although the ETF’s volatility protection can contribute to a lag of pure equity ETFs when markets rise, PHDG’s long equity exposure is large enough (over 97% that the fund also hit a new high Monday.

Over the past 30 days, PHDG has added nearly $102 million in new assets, a total surpassed by just five other PowerShares ETFs. In fact, PHDG has more than doubled in size this year. [These ETFs Have Doubled in Size in 2014]

PowerShares S&P 500 Downside Hedged Portfolio