An article in The Wall Street Journal brings up an increasing popularity of low-volatility strategies in both mutual funds and exchange-traded funds (ETFs). The article states that
Currently, Morningstar tracks 33 low-volatility mutual funds with $7.23 billion in assets, at least six of which were launched this year.
But assets in low-volatility mutual funds still pale in comparison to those of low-volatility ETFs. Morningstar tracks 12 such ETFs with $11.26 billion in assets. Partly, that’s because ETF providers were first to market.
Alpholio™ identified the following low-volatility ETFs in the decreasing order of assets as of 10/3/2013:
|Name||Ticker||Inception Date||Assets ($M)|
|PowerShares S&P 500 Low Volatility Portfolio||SPLV||5/5/2011||4,203.7|
|iShares MSCI Emerging Markets Minimum Volatility||EEMV||10/18/2011||2,706.4|
|iShares MSCI USA Minimum Volatility||USMV||10/18/2011||2,019.6|
|iShares MSCI All Country World Minimum Volatility||ACWV||10/18/2011||1,013.5|
|iShares MSCI EAFE Minimum Volatility||EFAV||10/18/2011||810.7|
|PowerShares S&P Emerging Markets Low Volatility Portfolio||EELV||1/13/2012||204.4|
|PowerShares S&P International Developed Low Volatility Portfolio||IDLV||1/13/2012||125.2|
|EGShares Low Volatility Emerging Markets Dividend||HILO||8/4/2011||100.6|
|PowerShares S&P SmallCap Low Volatility Portfolio||XSLV||2/15/2013||28.4|
|PowerShares S&P MidCap Low Volatility Portfolio||XMLV||2/15/2013||18.8|
|SPDR Russell 2000® Low Volatility||SMLV||2/20/2013||9.9|
|SPDR Russell 1000® Low Volatility||LGLV||2/20/2013||9.5|
Since the oldest of these ETFs, SPLV, has been around for only 29 months, volatility and Sharpe Ratio measures are not yet available from Morningstar or other providers that require at least three years of a fund’s history. Alpholio™ published Sharpe Ratios through March 2013 for some of these ETFs in a previous post.
Low-volatility strategies typically have a high allocation to utilities, healthcare and consumer staples stocks, or to “deep value” equities. One example of low-volatility mutual funds mentioned in the article is the Invesco Low Volatility Equity Yield Class A (SCAUX).
|3-Year Standard Deviation||13.33||12.41|
|3-Year Sharpe Ratio||1.10||1.28|
|5-Year Standard Deviation||18.61||18.08|
|5-Year Sharpe Ratio||0.51||0.61|
The above historical performance figures from Morningstar indicate that the fund had a higher volatility (expressed as a standard deviation of returns) and underperformed the S&P 500® index, its best-fit benchmark, on a risk-adjusted basis (Sharpe Ratio) in both the three- and five-year trailing periods.
In July, Invesco restructured its U.S. Quantitative Core and Global Quantitative Core funds and renamed them Invesco Low Volatility Equity Yield and Invesco Global Low Volatility Equity Yield. The change was made to respond to investors’ growing demand for income with the potential for downside protection, says Donna Wilson, the firm’s director of portfolio management.
It is uncertain whether the recent restructuring of the fund will result in different results going forward.