Low Risk ETFs Beating SPY In 2014 – ETF News And Commentary
The U.S. economy had a shaky start to this year with a cold snap taking away all the warmth from Q1. To add to this, overvaluation concerns, worries over the withdrawal of QE support in the U.S. and stress between Russia and the West on the Ukrainian issue triggered a flight to safety in the initial months (read: 3 Low Risk ETFs for Market Turmoil ). Though spring sprung more jobs, better housing and manufacturing numbers, and raised confidence in the U.S. citizens leading the economy to advance 4.6% in Q2 and 3.9% in Q3, the global financial market again faltered to close out the year. Concerns over global growth especially in the big three foreign regions ─ Euro zone, Japan and China ─ and rising risks of a sooner-than-expected hike in the U.S. interest rates weighed heavily on stocks this month. Iraq instability, a protest in Hong Kong and Ebola crisis in West Africa have also taken a bite out of stock market returns. If this was not enough, oil prices have moved back to the recession-ridden phase of 2009, losing about 45% since the start of the year (read: Volatility ETFs in Focus on Oil Upheaval ). Russia has once again started to hit headlines for all wrong reasons, with the latest being an upheaval in its currency and bond markets. Notably, Russia resorted to an extremely steep rate hike on December 16 to plug the plunge in its currency which has halved in price against the greenback this year. However, such a desperate move was in vein as the ruble did not find success in arresting its protracted downturn. It seems that Russian tumult and the oil crash will contaminate the risk-on trade sentiment at the end of the year. Investors are getting out of high-growth and high-beta stocks across the globe and seeking refuge in safe and income-oriented assets thanks to sluggish global economic indicators. If this was the snapshot of the year, low risk equities ETFs have all reasons to perform impressively. After all, the S&P has added 12% this year compared to a stellar 35% returned last year. The market sentiment simply moved back and forth with each economic release in the event-loaded 2014. This is especially true as low risk investments can prove quite effective in one’s portfolio in arresting downside risks as compared to high beta products. It is one of the most popular investing themes at present, given the occasional jump in volatility since the start of the year. Below, we have mentioned two low risk ETFs which soothed investors’ nerves in 2014 having returned more than the broader market ETF SPDR S&P 500 ETF (NYSEARCA: SPY ) in the time frame. S&P MidCap Low Volatility Portfolio (NYSEARCA: XMLV ) This overlooked ETF looks to follow the S&P MidCap 400 Low Volatility Index. The product invests about $53.2 million in assets in 80 stocks. From a sector look, financials takes half of the portfolio followed by about 15% of assets invested in utilities and 7.4% in materials. The portfolio has minimal company-specific concentration risk with no product accounting for more than 1.63%. Church & Dwight Co., Alleghany Corp and HCC Insurance Holdings are top three choices. The product charges about 25 bps in fees. The fund is up 16.8% so far this year. PowerShares S&P 500 Low Volatility Portfolio (NYSEARCA: SPLV ) This ETF provides exposure to about 100 U.S. stocks with the lowest realized volatility over the past 12 months by tracking the S&P 500 Low Volatility Index. Like other two choices, the fund is also widely spread across a number of securities as none of these holds more than 1.27% of assets. However, the product is tilted toward financials at nearly 33% share while utilities (18.1%), consumer staples (18.1%), industrials (12.2%) and health care (7.93%) round off to the top five (read: 3 Utility ETFs Surviving the Market Turmoil ). SPLV is the largest and the most popular ETF in the low volatility space with AUM of $4.98 billion. The fund charges 25 bps in annual fees and is up about 15.3% year to date.