Which Low Volatility ETFs Will Protect Your Portfolio?

Stock markets world-wide have been in turmoil over the past few weeks. While panic selling was initially triggered by currency devaluation in China, anemic global growth and uncertainty related to rate hike by the Fed, have added to investors’ concerns.

Low-volatility ETFs are designed for investors who want exposure to stocks but do not want to take on too much risk. These products have become extremely popular over the past few years since historical performance revealed that low-risk stocks have rewarded investors with higher return than high-risk stocks as well as the broader markets over long-term, in all the markets studied. This outperformance suggested that that investors actually misprice risk.

Did these low-volatility ETFs deliver on their promises during the past month, which by some measures, has been the one of the most volatile on record. Now may be a good time to revisit these products and see whether they deserve a place in investors’ portfolios. And, while a number of products are available to investors, there are significant differences in their strategies and investors should understand them properly before investing. (Read: Best ETF Strategies to Survive Market Turmoil)

There are more than 30 low- and minimum-volatility ETFs available to investors, focused on different styles (large/mid/small cap).geographical regions (US/Developed/Emerging/Europe/Japan) and strategies (low/minimum volatility/volatility weighted/risk weighted etc.).

In this article, we focus on the two ultra-popular US large cap low volatility ETFs—iShares MSCI USA Minimum Volatility ETF (USMV – ETF report) and PowerShares S&P 500 Low Volatility ETF (SPLV – ETF report).

Here’s a snap shot of these two ETFs and S&P 500 ETF (SPY – ETF report)

Yield

Expense Ratio

Beta

Standard Deviation (Annualized)*

1 Month Return

1 Year Return

Upside Capture Ratio (3 Y)**

Downside Capture
Ratio (3 Y)**

USMV

1.96%

0.15%