From the April 2013 issue of Research Magazine • Subscribe!

Seeking Less Uncertainty

Although stock market volatility as measured by the CBOE S&P 500 VIX has bottomed near pre-financial crisis lows, interest in ETFs that minimize rollercoaster moves hasn’t slowed.

InvescoPowerShares and State Street Global Advisors (SSgA) unveiled new ETFs aimed at reducing stock market gyrations.

SSgA launched the SPDR Russell 2000 Low Volatility ETF (SMLV) and the SPDR Russell 1000 Low Volatility ETF (LGLV) while PowerShares unveiled the PowerShares S&P MidCap Low Volatility Portfolio (XMLV) and the PowerShares S&P SmallCap Low Volatility Portfolio (XSLV).

Here’s how the funds are designed: 

The PowerShares S&P MidCap Low Volatility Portfolio (XMLV) is based on the S&P MidCap 400 Low Volatility Index. The benchmark tracks 80 of the least volatile stocks from the S&P MidCap 400 Index over the past 12 months. S&P weights the securities within the underlying index based upon the inverse of each security’s volatility, with the least volatile securities receiving the highest weights in the Underlying Index. S&P rebalances quarterly.

The PowerShares S&P SmallCap Low Volatility Portfolio (XSLV) is based on the S&P SmallCap 600 Low Volatility Index. This yardstick tracks 120 of the least volatile stocks from the S&P SmallCap 600 Index over the past 12 months.

S&P weights the securities within the index based upon the inverse of each security’s volatility, with the least volatile securities receiving the highest.

XMLV and XSLV both charge annual expenses of 0.25%.

The SPDR Russell 2000 Low Volatility ETF (SMLV) is linked to the performance of the Russell 2000 Low Volatility Index which is composed of low volatility small cap stocks within the index. Stocks are screened based on volatility from the previous 252 trading days. The index is then optimized to provide low volatility small cap exposure while managing turnover and neutralizing other factors, such as beta and momentum. The fund charges annual expenses of 0.25%.

The SPDR Russell 1000 Low Volatility ETF (LGLV) tracks low volatile large cap stocks inside the Russell 1000, using the same screening strategy as SMLV. The fund’s underlying index is reconstituted monthly, and as of Jan. 31, 2013, included approximately 95 securities. LGLV charges annual expenses of 0.20%. 

“Our new low volatility SPDR ETFs were developed in response to increasing demand from investors looking to improve the risk adjusted returns of their portfolio, increase their equity allocation while maintaining downside protection, or tactically take a more defensive approach to the US large cap or small cap markets,” said James Ross, senior managing director and global head of SPDR Exchange Traded Funds at SSgA. 

Ross added, “By helping investors and advisors better manage risk in their portfolios, the SPDR Russell 2000 Low Volatility ETF and SPDR Russell 1000 Low Volatility ETF are key additions to our growing family of SPDR ETFs.”

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