Low volatility ETFs are gaining renewed attention from investors this summer despite good performance from non-defensive sectors.
In the US, technology and consumer discretionary sectors are producing positive returns, yet the PowerShares S&P 500 Low Volatility Portfolio (SPLV) is up 11.1% year to date, outpacing the S&P 500’s 10.9% over the same timeframe.
SPLV also gained positive net inflows so far this year of $27.8 million, thanks to spikes in mid-May and mid-August. On 18 August, investors poured in more than $560 million.
The positive news for the fund comes as investors are broadly choosing growth and momentum strategies over value, but defensive sectors’ performance is helping funds like SPLV, which allocates more than 16% to utilities, the third largest sector in the fund.
Low volatility mid and small caps benefit too
Low volatility mid cap funds have also seen positive change. The PowerShares S&P MidCap Low Volatility Portfolio (XMLV), which invests in 80 stocks from the S&P MidCap 400 Index with the lowest trailing 12-month volatility, saw inflows of close to $300 million since 1 January, with similar spikes throughout the warmer months.
Smaller caps have struggled recently, and this has affected low vol ETFs too. The PowerShares S&P SmallCap Low Volatility Portfolio (XSLV), which holds 120 stocks with the lowest trailing 12-month volatility from the S&P SmallCap 600 Index, is down around 3% over the last month, yet it saw inflows of more than $83 million on 18 August.
These funds’ acquisition of capital comes despite a surge in their non-low vol counterparts, as market participants expressed optimism regarding strong company earnings, steady economic growth and relatively good valuations.
ETF investors remain positive on outlook
Participants are also hoping for tax reform from the Trump administration, and the strength of the global economy to continue, rather than focusing on domestic politics.
An upcoming meeting between Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi may also give clues as to the Fed’s plans to pair back its stash of bonds and the ECB’s goal to cut back on quantitative easing.