Professing My Love For SPLV

April 09, 2012

At times like these, when some are saying equities are going up another 30 percent, investors would do well to ignore the hype. That’s where SPLV comes in.

As recently as last month, my colleague Paul Britt and I had a bit of a back-and-forth here, disagreeing about what the stock market’s up move in the past few months really meant.

He argued things were looking up, and the time was ripe for the PowerShares S&P 500 High Beta Portfolio (NYSEArca: SPHB) to squeeze a bit more upside potential. I said “poppycock!” In these uncertain times, investors are better off with the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV).

While he wasn’t necessarily arguing for a high-beta approach to the market, he was highlighting the effectiveness of SPHB’s strategy: targeting more aggressive, higher beta stocks. High beta is what it promises, and high beta is what investors in the fund get.

The problem is, high beta is not only a risky proposition by nature—it’s a potentially disastrous strategy in this market. That is why SPLV is such an interesting choice for investors.

Take a look at the chart below, which shows the performance of SPLV compared with that of the SPY, the most widely followed ETF proxy for the S&P 500.

SPLV vs SPY: June 2011 to end-March 2012

Not only has SPLV roundly outperformed SPY since its inception 11 months ago, but the fund’s ascent has also been nearly as steep as that of the market-cap-weighted S&P 500. What’s more, SPLV faced a much less drastic sell-off in the late summer and early fall, when the European debt crisis was in full swing.

SPLV vs SPY: July through Sept 2011

It’s during these periods where SPLV really shines.

 

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