Low-Vol ETFs Outshining Counterparts

April 25, 2013

Low-volatility ETFs seem to be delivering on their promise, and investors are responding with assets.


A lot has been said about low-volatility equities ETFs being all the rage lately, and a look at a fund like the iShares MSCI USA Minimum Volatility Index Fund (NYSEArca: USMV) seems to suggest that’s very much the case.

USMV, an ETF that essentially serves up exposure to low-volatility names found in the MSCI USA Index, has attracted $2.41 billion in net assets year-to-date, and now boasts more than $3.4 billion in total assets accumulated in just 18 months.

By comparison, its nonvolatility-focused counterpart, the iShares MSCI USA Index Fund (NYSEArca: EUSA) bled nearly $10 million since the beginning of the year, putting its total assets under management at a meager $156.2 million. USMV has also outperformed its counterpart significantly in recent months.

Russell Indexes itself—the provider behind the benchmarks anchoring the newcomers SPDR Russell 100 Low Volatility ETF (NYSEArca: LGLV) and the SPDR Russell 2000 Low Volatility ETF (NYSEArca: SMLV)—put out a note today highlighting how low-volatility indexes have, indeed, been delivering on their promise of lower variability than their respective broader universe, as well as stronger relative returns.

Investors seem to be listening. Demand for low-volatility strategies is also seen in other funds such as the PowerShares S&P 500 Low Volatility Fund (NYSEArca: SPLV), which has attracted a net of $1.30 billion year-to-date, boosting its total assets to almost $5 billion, while the SPDR S&P 500 ETF (NYSEArca: SPY) has shed a net of $7 billion in the same time frame.

The launch of the low-volatility SPDRs built around the Russell 1000 and 2000 indexes in February—and their respective growth to about $6.5 million in assets each—also speaks to that trend.

Russell had an unsuccessful foray as a fund sponsor into this pocket of the market before, shuttering its funds last October, but seems to be carving a new footprint as the index provider for the two State Street funds LGLV and SMLV.

“Concern about market volatility in recent years has spurred interest in indexes that focus in stocks exhibiting lower historical variability of returns than their parent indexes,” Russell Investment Strategies David Koenig said in the note.

“In today’s environment of heightened uncertainty, investors have utilized low volatility strategies in portfolio construction as a way to help manage portfolio volatility while maintaining equity market participation,” he said.

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