The Performance Difference
Since Jan. 1, 2013, iShares’ USMV has rallied 15.4 percent, extending what are now gains of more than 18 percent in the past year. That compares with 10.8 percent year-to-date gains for EUSA.
PowerShares’ SPLV, the pioneer in the space and currently the biggest low-volatility equities fund on the market, has also seen gains of more than 15 percent since Jan. 1, compared with SPY’s 11.5 percent rise in the same period. In the past 12 months, that performance stands at a 20 percent gain for SPLV versus a 14 percent gain for SPY.
More importantly, however, is how these funds measure up in terms of volatility.
While iShares doesn’t report standard deviation for a fund that’s less than three years of age, SPLV has reported 8.9 percent volatility in the past year, compared with 12.8 percent for the S&P 500 Index.
What’s more, SPLV’s Sharpe ratio has been roughly twice that of the S&P 500 in the past year. The Sharpe ratio measures risk-adjusted returns, meaning it sheds light on whether a fund’s higher returns relative to its peers are the result of too much additional risk exposure—the higher the ratio, the better the fund’s risk-adjusted performance is.
The Russell indexes benchmarking the latest-to-market SPDRs also reflect these performance differences.
The Russell 1000 Low Volatility Index and the Russell 2000 Low Volatility Index have seen year-to-date returns of 14.5 and 9.5 percent, respectively. It’s worth noting that the index returns are not entirely comparable to the fund returns listed above for USMV and SPLV, because fund returns include tracking error and fees.
That said, Russell said the index returns exceed those of their respective parent indexes by roughly 4 percentage points and 2 percentage points, respectively.
Russell has also said that its low-volatility 1000 and 2000 indexes have delivered a standard deviation year-to-date that’s 1 to 2 percentage points lower than the 11.6 and 15.2 percent standard deviation the Russell 1000 Index and Russell 2000 Index have seen since the beginning of the year.