Low-Volatility ETFs: 'The New Black'
John Spence and Tom Lydon of ETF Trends provide two disparate insights on the current trend toward low-volatility ETFs, and each discuss two new offerings they are watching.
Investors are buying ETFs that follow specialized low-volatility benchmarks at a much faster pace so far this year, as they hunt for funds that provide exposure to stocks but with less risk.
"'Min Vol’ strategies are ‘the new black’ for many in the industry—products which hold their relevance through a market cycle,” ConvergEx Group market strategists said in a note Tuesday. “While there are many quantitative methods to dampen portfolio volatility, the two most widely used among ETF sponsors are dividend-focused funds and those products that choose investments based on historical price volatility.”
Dividend ETFs have pulled in close to $4 billion so far in 2013, compared with $9 billion of inflows the entire past year. Meanwhile, funds that focus on stocks with less price volatility have gathered $1.5 billion year-to-date, as compared to the $4.6 billion in new capital over the past year, according to ConvergEx.
ETFs in the latter category include PowerShares S&P 500 Low Volatility Portfolio (SPLV) and iShares MSCI Emerging Markets Minimum Volatility Index (EEMV).
SPLV is the largest low-volatility ETF by assets, with about $3.7 billion. The tracking index consists of the 100 stocks from the S&P 500 with the lowest realized volatility over the past 12 months.