Single Factor Focus: Ranking The Top 'Low Volatility' ETFs

With almost a dozen to choose from, investors have plenty of options when it comes to low-volatility ETFs.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

Low-volatility ETFs are in vogue. That's clear to see with just a cursory glance at the ETF.com fund flows page. Year-to-date, the iShares Edge MSCI Min Vol USA ETF (USMV | A-76) picked up $6.7 billion from investors, putting it at No. 3 on the inflows leader list, according to FactSet data.

But it's not just USMV. There are 11 single-factor, low-volatility products on the market, and in total they've seen inflows of $14.1 billion so far this year.

It's not necessarily surprising to see the strong interest in these products. They've broadly outperformed their vanilla, market-cap-weighted counterparts in 2016. Moreover, academic research suggests low-volatility is one of the six factors that have delivered long-term outperformance.

There's no guarantee that low-volatility ETFs will continue to outperform going forward; and in fact, there's been concern among some analysts that low-vol stocks have become overvalued. Nevertheless, for investors wanting to get exposure to the low-volatility factor, it's never been easier.

Here we take a look at the different ETF options available to invest in.

US-Focused Low-Vol ETFs

There's six low-volatility ETFs that target U.S. equities. The aforementioned USMV is the most popular, with more than $15 billion in assets. It targets a broad swath of the U.S. stock market, including large caps and midcaps. USMV follows an index "that screens for low volatility stocks, takes into account the correlations among them, and then generates an optimized portfolio with guardrails in place to limit sector concentrations."

The PowerShares S&P 500 Low Volatility Portfolio (SPLV | A-70), with $8 billion in assets, takes a more straightforward approach by simply holding the 100 S&P 500 stocks that exhibited the lowest daily volatility over the past year.

Another low-vol ETF heavy on the large-caps is the SPDR Russell 1000 Low Volatility ETF (LGLV | B-76). The fund, which failed to attract much in the way of assets in its 3 1/2 years on the market, currently only has AUM of $77 million. LGLV tracks the 200 least-volatile stocks in the Russell 1000, optimized "to neutralize exposure to other factors, such as beta and momentum."

YTD Returns For USMV, SPLV, LGLV

 

The other three low-volatility U.S. ETFs currently available focus on either midcaps or small-caps. The PowerShares S&P MidCap Low Volatility Portfolio (XMLV | A-54), one of the sister funds to SPLV, tracks the 80 least-volatile stocks in the S&P MidCap 400 Index. The other sister fund, the PowerShares S&P SmallCap Low Volatility Portfolio (XSLV | A-48), tracks the 120 least volatile stocks from the S&P SmallCap 600 Index.

 

Meanwhile, the SPDR Russell 2000 Low Volatility ETF (SMLV | A-62) is the small-cap counterpart to LGLV, and tracks the 400 least volatile stocks pulled from the Russell 2000 Index. It also has yet to catch on with investors, with AUM of only $81 million.

YTD Returns For XSLV, SMLV

 

TickerFundExpense Ratio
USMViShares Edge MSCI Min Vol USA ETF0.15%
SPLVPowerShares S&P 500 Low Volatility Portfolio0.25%
LGLVSPDR Russell 1000 Low Volatility ETF0.12%
XMLVPowerShares S&P MidCap Low Volatility Portfolio0.25%
XSLVPowerShares S&P SmallCap Low Volatility Portfolio0.25%
SMLVSPDR Russell 2000 Low Volatility ETF0.12%

 

International Low-Vol ETFs

In addition to the half-dozen ETFs that target the low-volatility factor in U.S. equities, there's another five that target it in international equities. All of them are issued by either iShares or PowerShares. The largest is the iShares Edge MSCI Min Vol EAFE ETF (EFAV | A-68), with $7.7 billion in assets.

EAFE uses the same methodology as the aforementioned USMV on the popular MSCI EAFE Index. The result is low-volatility exposure to developed markets outside the U.S. and Canada.

 

Another ex-U.S. international ETF in the space is the PowerShares S&P International Developed Low Volatility ETF (IDLV | B-56). Similar to the other low-vol PowerShares products, IDLV takes a straightforward approach by holding the 200 least volatile stocks in the S&P Developed ex U.S. and South Korea LargeMidCap BMI Index.

 

YTD Returns For EFAV, IDLV

 

The sole global low-volatility ETF is the $3.3 billion iShares Edge MSCI Min Vol Global ETF (ACWV | A-60). ACWV's low-vol portfolio holds developed as well as emerging market equities.

On the other hand, the iShares Edge Min Vol Emerging Markets ETF (EEMV | B-72) and the PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV | C-66) target emerging markets exclusively. EEMV is the much larger of the two ETFs, with $4.1 billion in assets compared with EELV’s $261 million.

YTD Returns For EEMV, EELV

 

TickerFundExpense Ratio
ACWViShares Edge MSCI Min Vol Global ETF0.20%
EFAViShares Edge MSCI Min Vol EAFE ETF0.20%
IDLVPowerShares S&P International Developed Low Volatility ETF0.25%
EELVPowerShares S&P Emerging Markets Low Volatility Portfolio0.29%
EEMViShares Edge MSCI Min Vol Emerging Markets ETF0.25%

 

Contact Sumit Roy at [email protected].

 

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.