The market’s second-largest ETF issuer jumps into the low-volatility ETF segment with funds honing in on small-cap and large-cap equities.
State Street Global Advisors, the second-largest ETF provider in the country, today rolled out two low-volatility equities funds that are built around a pair of Russell indexes once used in Russell ETFs that were liquidated last year.
The SPDR Russell 1000 Low Volatility ETF (NYSEArca: LGLV) invests in a portfolio of some 95 low-volatility large-cap stocks—based on volatility measured in the previous 252 days—and tracks the same index that once benchmarked the Russell 1000 Low Volatility ETF (NYSEArca: LVOL), shuttered last October. LGLV comes with a 0.20 percent expense ratio.
The SPDR Russell 2000 Low Volatility ETF (NYSEArca: SMLV) comprises about 164 low-volatility small-cap securities picked from the Russell 2000 universe, and tracks the benchmark that once anchored the Russell 2000 Low Volatility ETF (NYSEArca: SLVY), also shuttered last year. SMLV costs 0.25 percent.
Both funds are designed to serve up low-volatility exposure to pockets of the Russell equities universe while managing turnover and “neutralizing” factors such as beta and momentum, the company said in a press release.
The launch marks State Street’s first foray into low-volatility equities strategies, a segment of the market that has attracted significant investor interest in recent months. Indeed, investors have shown they are willing to apply low-volatility screens to broad segments of the equities markets, as IndexUniverse ETF analyst Paul Britt recently pointed out in a blog.
Interestingly, the launch comes just days after Invesco PowerShares rolled out two additional low-volatility funds segmented by market capitalization that followed on the success it’s had with its first low-volatility ETF—the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV)—now boasting more than $3.3 billion in assets gathered in less than two years. PowerShares now offers five different S&P-based low-volatility strategies.
“Our new low volatility SPDR ETFs were developed in response to increasing demand from investors looking to improve the risk adjusted returns of their portfolio, increase their equity allocation while maintaining downside protection, or tactically take a more defensive approach to the U.S. large cap or small cap markets,” Jim Ross, senior managing director and global head of SPDR ETFs at State Street, said in the release.
The two indexes being used are part of the Russell-Axioma Factor Index series that is designed to deliver exposure to equities with low volatility—volatility being a measure of a security’s variability in total returns based on its historic behavior, as the company put in the funds’ original prospectus.
“Low volatility securities are considered to have a lower return variability than the overall market and can be used by investors to adjust volatility exposure in a portfolio,” it said in that filing.
The indexes pick securities that deliver low-volatility exposure from the Russell 1000 and 2000, respectively, and are reconstituted monthly.
“The Russell Low Volatility Indexes draw on Russell’s objective, rules-based, transparent index methodology to help investors construct a focused portfolio of stocks with lower volatility than their parent Russell 1000 and Russell 2000 Indexes,” Rolf Agather, managing director of index research and innovation for Russell Investments, said in the release.
State Street has another low-volatility strategy, the SPDR S&P 1500 Volatility Tilt ETF, but the fund has been in registration since 2011.