3 S&P 500 ETFs With a Twist to Help Handle Volatility

3 S&P 500 ETFs With a Twist to Help Handle Volatility

High interest rates may mean just buying and holding a straight S&P fund may not be profitable.

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Reviewed by: etf.com Staff
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Edited by: Mark Nacinovich

The price of the SPDR S&P 500 ETF Trust (SPY) sits around $430 a share. That’s where it was in early June. And in August 2022. And during July 2021. 

In other words, the most popular U.S. stock market gauge has run around like a scrambling NFL quarterback, but at the end of a long, tiring play, ended up right back at the line of scrimmage. That stagnation adds to the appeal of ETFs that start with the full S&P 500, and then tilt it in some manner to provide an alternative approach for “go nowhere” markets.  

Here are a few that likely have not hit many investment advisors’ radar screens. They don’t have a huge amount of assets and they don’t have TV commercials about them. But they’re worth knowing about. 

Invesco's SPVM

The Invesco S&P 500 Value with Momentum ETF (SPVM) is a small fund from a giant ETF player. At $36 million in assets after 12 years in operation, SPVM has not made it through too many investment screens. And it won’t make any top performer lists. But with the stock market’s love affair with growth stocks finally showing signs of fading, SPVM’s approach might be a comeback story. 

The fund whittles down from the S&P 500 to 200 stocks that have the highest scores based on a criterion including ratios of earnings, sales and book value. Then, it applies a momentum overlay to get down to 100 portfolio names. In the present market environment, this is likely to pick out the smaller stocks within the 500, which have been long overdue to perform versus mega-cap stocks. 

Invesco's XRLV

The Invesco S&P 500 ex-Rate Sensitive Low Volatility ETF (XRLV) is another Invesco fund that at $44 million in assets has gone largely unnoticed since its 2015 inception. Throughout most of the time, interest rates were near zero, and so avoiding stocks expected to underperform in the face of rising rates was irrelevant. 

Some 500 basis points of interest rate lift later, suddenly ETFs like XRLV might find themselves in the sweet spot. It starts with the S&P 500, and then removes the 100 stocks that have been weakest when rates rose during the past five years. Those 400 stocks are knocked down to a 100-stock portfolio by choosing the ones with the lowest historical volatility. 

XRLV has yet to see a performance pop, but that may change as the earlier segment of that five-year trailing period, when rates were near zero, is replaced by the modern era of normal to high interest rates. 

Global X's XYLG

The Global X S&P 500 Covered Call & Growth ETF (XYLG) is the largest of the three exchange-traded funds discussed here, at $61 million in assets. The fund recently turned three years old and takes the popular covered-call writing approach one step further. It owns the S&P 500, and sells one-month, at-the-money call options on that portfolio. 

But, as opposed to many ETFs that fully “cover” the portfolio with options, leaving little additional upside, XYLG writes options on only 50% of the portfolio. That makes it a “happy medium” between a full covered call ETF and an unhedged S&P 500 ETF. 

Dealing With a Down Market

These are merely three out of hundreds of ETFs that exist under the radar. In a continuous bull market for stocks, accompanied by ultra-low interest rates, investment advisors could get away with a lack of creativity and resourcefulness when it came to researching, explaining, and owning the ETFs in the portfolios they manage. But that was then, and this is now. 

The current market climate ups the ante to find ETFs that can deliver true alpha, in case the approach of “owning the whole stock market” fails as it has in the past, following bull market cycles. 

Rob Isbitts was an investment advisor for 27 years before selling his practice to focus on ETF research and education. He is based in Weston, Florida. Contact him at  [email protected] and follow him on LinkedIn.