Invesco PowerShares, a leading global provider of exchange-traded funds (ETFs), has revealed that assets under management in the highly popular PowerShares S&P 500 Low Volatility Portfolio ETF (SPLV) have surpassed $4 billion.
Ben Fulton, Invesco PowerShares managing director of global ETFs, said: “Invesco PowerShares pioneered low-volatility ETFs. We take pride in being first to market with groundbreaking products, and SPLV is a prime example of our ongoing commitment to innovation. As the flagship low-volatility ETF on the market, SPLV has averaged over $7.6 million in inflows per day since its inception.”
The fund launched in May 2011, on the NYSE Arca, to help investors reduce portfolio volatility and improve risk-adjusted returns. Since then it has become the largest and most actively traded low-volatility ETF on the market today.
The fund tracks the S&P 500 Low Volatility Index, an index consisting of 100 stocks selected from the S&P 500 Index with the lowest realised volatility over the past 12 months. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights.
Since the fund’s inception, the index has achieved superior risk-adjusted returns than the conventional S&P 500. The outperformace has been particularly strong over the past 12 months, with the S&P 500 Low Volatility Index posting a return of 17.4% with 8.67% volatility compared to a return of 13.46% with volatility of 12.83% for the market cap-weighted S&P 500.
John Feyerer, head of product strategy & research at Invesco PowerShares, said: “Investors have been allocating low-volatility ETF strategies as core portfolio holdings. PowerShares low-volatility ETFs are based on an index methodology that is easy to understand and are an effective way for investors to add or maintain equity exposures, while attempting to mitigate overall portfolio risk. We believe the PowerShares suite of low-volatility ETFs represent an attractive alternative to cap weighted strategies.”
Invesco PowerShares offers the largest family of low-volatility ETFs on the market, both in terms of the number of products as well as combined assets under management. However, rival providers have launched successful products in this space, most notably iShares which offers a suite of minimum volatility ETFs. This suite recently surpassed $4 billion in combined assets.
UK and European investors looking for a locally listed equivalent to the PowerShares fund should consider the SPDR S&P 500 Low Volatility UCITS ETF (USLV) from SSgA SPDRs. This fund tracks the same benchmark as SPLV but is listed on the London Stock Exchange, Deutsche Börse and SIX Swiss Exchange, making it more accessible to European investors.
Low-volatility ETFs are also offered in Europe by iShares and Ossiam. Of note is the iShares S&P 500 Minimum Volatility (SPMV), which, like the PowerShares and SPDR products, aims to provide less volatile exposure to the S&P 500 but seeks to achieve this via a more sophisticated, quantitative-led approach. The iShares fund is benchmarked to the S&P 500 Minimum Volatility Index, an index reflecting the performance of a subset of securities within the S&P 500 Index selected using an optimised minimum-volatility strategy designed to achieve lower total risk, measured by standard deviation, than the S&P 500 while maintaining similar characteristics. This is in contrast to the S&P 500 Low Volatility Index which simply selects the 100 stocks with the lowest volatility and weights them inversely.
Globally, low-volatility strategies have proved very successful and are currently one of the hottest themes in terms of gathering assets. The appeal of these strategies has been boosted by the heightened volatility experienced over the past few years, a consequence of various market turmoil including the sub-prime meltdown, European sovereign debt crisis and US fiscal gridlock.