A recent article on Barron’s compared the returns of two low-volatility ETFs, SPLV and USMV, to that of the S&P 500® index. However, returns (even if total, not just price returns) do not tell the whole story. After all, the main feature of these two ETFs is low volatility.

One of alternative ways of assessing relative performance is the Sharpe Ratio. Since the two ETFs in question have less than three years of history, popular online services do not yet provide this measure. So, we did the calculations based on the common historical period from November 1, 2011 to March 1, 2013 for both funds, and used SPY as an implementation of the S&P 500® index. The results are:

Sharpe Ratio 2.13 2.82 2.93

Although SPY beat both ETFs in terms of the total return, each of them had a higher Sharpe Ratio. While the analysis period was relatively short (16 months), this bodes well for the future.

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