ETF managers aim to produce portfolios with lower risk than the overall stock market while keeping up with overall gains.
These two ETFs are good examples of applying low-volatility stock-picking strategies without sacrificing return.
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ISHARES EDGE MSCI MIN VOL USA ETF (New York symbol USMV) provides investors with a portfolio that aims to deliver market-like returns but with lower volatility. It does this by holding some stocks with more volatility—but focuses on low volatility stocks overall.
The ETF holds a portfolio of U.S. stocks. Its largest sector weightings are Information Technology (16.4%), Financials (14.2%), Consumer Staples (12.3%), Healthcare (10.7%), Consumer Discretionary (10.6%), Real Estate (8.6%) and Utilities (8.5%).
The fund holds 214 stocks, but with only 15% of the portfolio allocated to its top 10 stocks; they include Newmont Goldcorp (materials, 1.85%), Waste Management (industrials, 1.6%), Coca-Cola (consumer staples, 1.6%), Visa (financials, 1.5%), PepsiCo (consumer staples, 1.4%), Republic Services (industrials, 1.4%), Yum Brands (consumer discretionary; 1.4%), Nextera Energy (utilities, 1.4%), Verizon (communication, 1.4%), and Hershey Foods (consumer staples, 1.3%).
The ETF started up in October 2011, and its MER is just 0.15%. With an average of $349 million in units changing hands daily, it provides strong liquidity.
The fund pays a fluctuating quarterly dividend. For the past 12 months, the payment amounted to $1.15, which makes for a 1.9% yield. The overall price-to-earnings ratio of the stocks the ETF holds is a high 26.1.
The main objective of this exchange-traded fund is to offer investors a portfolio of U.S. stocks with lower overall risk than the broad market. At the same time, it aims to achieve competitive returns. It has generally provided investors just that since it launched in 2011.
Over the past 5 years, the fund has gained 13.6% per year compared to 11.3% for the S&P 500 Index. Volatility, as measured by the ups and downs of the ETF’s returns, was also lower than the overall market.
ETFs: Similar low-volatility approach from just 100 U.S. stocks
INVESCO S&P 500 LOW VOLATILITY ETF (New York symbol SPLV; www.invesco.com) invests in U.S. companies with low volatility share prices.
The fund selects the 100 stocks from the S&P 500 with the lowest volatility over the past 12 months. Stocks with the lowest volatility receive the largest weighting in the portfolio; there is no limit on the weighting of individual stocks.
Currently, segment weights are skewed towards the traditionally less volatile industry groups. The largest exposures are to Utilities (27.6%), Financial Services (24.5%), Real Estate (18.5%), and Consumer Staples (9.8%).
The ETF currently holds 100 stocks; its top 10 holdings make up 12% of the assets. They include Reblic Services (industrials, 1.3%), Waste Management (industrials, 1.2%), Duke Energy (utilities, 1.2%), Evergy (utilities, 1.2%), Next- Era Energy (utilities, 1.2%), Eversource Energy (utilities, 1.2%), WEC Energy (utilities, 1.2%), Yum Brands (consumer cyclical, 1.1%), PepsiCo (consumer staples, 1.1%) and Mondelez (consumer staples, 1.1%).
The fund started in May 2011 and charges a fairly low MER of 0.25%. It offers excellent liquidity, with an average of $207 million in units trading daily.
The ETF pays a fluctuating monthly dividend; this amounted to $1.14 over the past 12 months; the current yield is 2.1%.
Over the past 5 years, the fund gained 12.7% per year, compared to the gain of 11.3% for the S&P 500 equity index. Its annualized volatility was 9.5% compared to 12.0% for the S&P 500 index.
Recommendation in Best ETFs for Canadian Investors: iShares Edge MSCI Min Volatility USA ETF and Invesco S&P 500 Low Volatility ETFs are ETF buys.
Comments
Ronald
Hello Pat been seeing some interest in Ballard Power Systems inc. bldp-tsx. Wondering what you think of this stock thank you
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Hello Pat been seeing some interest in Ballard Power Systems inc. bldp-tsx. Wondering what you think of this stock thank you
Hi, Ronald. This is an interesting stock. Pat will consider it for an upcoming Inner Circle Q&A. Thank you.