New ETFs Veer From Vanilla

July 20, 2017

PowerShares S&P 500 Minimum Variance Portfolio (SPMV)

Investors have embraced low/minimum-volatility products in recent years, perhaps more than any other loosely defined smart-beta ETF strategy. That’s due in part to the $6.7 billion PowerShares S&P 500 Low Volatility Portfolio (SPLV) and the $13.5 billion iShares Edge MSCI Min Vol USA ETF (USMV). Though we think both solve a need for investors—exposure to U.S. equities with lower risk considerations—their approaches are different.

USMV focuses on the least volatile stocks within each sector of a large/midcap MSCI USA index and has sector constraints, while SPLV holds stocks within the large-cap S&P 500 Index that score as low risk without such guardrails.

Newly launched SPMV’s approach has similarities to USMV in that it includes sector constraints, but it’s done relative to the large-cap index. In addition, semiannual rebalance and reconstitution efforts are done at different times: February and August for the S&P minimum volatility index versus May and November for the MSCI.

As of mid-July, SPMV had more in health care assets (14%) than SPLV (7%), but less than USMV (20%). Meanwhile, SPMV had more in real estate assets (8%) than SPLV (3%) and USMV (6%). From a cost perspective, SPMV’s 0.13% expense ratio is below USMV’s 0.15% and SPLV’s 0.25%.

Time will tell if investors favor the currently lower cost product or those with greater trading volume.


Differing Sector Exposures

Source: CFRA Research


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