Invesco PowerShares, looking to leverage on the success it’s had with its PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), today is launching another two funds that serve up low-volatility exposure to different market-capitalization pockets of the market.
The PowerShares S&P MidCap Low Volatility Portfolio (NYSEArca: XMLV) will track the S&P MidCap 400 Low Volatility Index, a benchmark that consists of the 80 least-volatile securities found in the broader S&P MidCap 400 Index.
In similar fashion, the PowerShares S&P SmallCap Low Volatility Portfolio (NYSEArca: XSLV) hones in on 120 of the S&P SmallCap 600 Index’s least-volatile stocks. Both XMLV and XSLV will each have a 0.25 percent expense ratio, meaning investors will be charged $25 for each $10,000 invested.
The two funds would bring to five the number of PowerShares low-volatility ETFs. It all began in May 2011 with SPLV, a fund that was not only the first low-volatility play on the S&P 500 to come to market, but one that has gathered a loyal following and now boasts $3.36 billion in assets gathered in less than two years.
“Investors continue to embrace low-volatility ETF strategies as a simple and effective way to maintain equity exposure while mitigating overall portfolio risk,” Ben Fulton, PowerShares managing director of global ETFs, said in a press release.
Volatility is a measure of equity risk, and the popularity of low-volatility ETFs with investors comes from the belief that a focus on low-vol stocks tends to outperform the broader market on risk-adjusted terms.
SPLV has been fitting the bill in that regard.
Since inception, SPLV has outperformed the broader S&P 500 by weeding out the more volatile securities. It has gained 23.5 percent, while the broader index rose 16.6 percent in the same period, according to data provided by PowerShares.
On a risk-adjusted basis, SPLV’s returns were double that of the broad index.
What’s more, SPLV’s volatility, as measured by standard deviation, also came ahead at 13.6 percent compared with 19.5 percent in the S&P 500 since the fund came to market in May 2011.
PowerShares hopes the new additions to the low-volatility roster of funds—which also include an emerging-markets-focused low-volatility ETF linked to an S&P benchmark, and an international developed low-volatility portfolio, “EELV” and “IDLV’—will replicate the success SPLV has had.
Securities will be ranked in the portfolios by measures of volatility, with the least volatile carrying the most weight in each respective portfolio. The underlying benchmarks are rebalanced quarterly.
Smart beta isn’t smarter than cap weighting, but it is different, and that’s good.
Trial by fire is one way to discover why ETF transparency matters.
Most people now realize leveraged ETFs can hurt you, but how, then, to use them?
What would a shift out of a mutual fund and into an ETF look like up close?