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Low Volatility ETF Picks Up Spirits And New Assets Under Management

30 August 2011 at 3:52 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

The S&P 500 SPDR Trust (SPY) has rocketed 8.0% in 7 trading sessions. Equally impressive, only one of those days logged a loss.

On the flip side,¬†“fear trade faves” are hanging tough. SPDR Gold (GLD) is essentially flat over the same 7 days. Similarly, treasury bonds via iShares 7-10 Year Treasury (IEF) are down a mere 0.5%.¬†(Champagne-cork poppers may want to hold off on the Mimosas.)

Do we have a problem here?¬†Probably. The¬†seriousness of the consideration given to¬†QE3 bond purchases at the August FOMC¬†meeting implies that¬†the Fed¬†is running out of “fixes.”¬†In fact, if¬†Bernanke’s Fed had gone ahead with efforts to buy long-maturity treasuries, the activity would likely have continued¬†pressuring the dollar’s value and enhancing¬†gold’s luster.

The reasons for caution are well-documented. The CBOE S&P Volatility Index (VIX) is still north of 30. Copper is still struggling to demonstrate healthy global demand. European debt held by world financial institutions means more mergers, more bailouts, more failures and more uncertainty.

Nevertheless,¬†stocks remain attractive relative to the alternatives. A simple test? How often is the dividend yield of the S&P 500 greater than that of a 10-year Treasury bond? Yeah… pretty rare.

So for those who recognize value in S&P 500 stocks for the long-term, yet don’t have the stomach¬†for quite so much “action,” consider PowerShares S&P 500 Low Volatility Portfolio (SPLV). This ETF¬†seeks investment results that correspond¬†to the price and yield of the S&P 500 Low Volatility Index,¬†which consists of the 100 stocks from the S&P 500 with the lowest realized volatility over the past 12 months. The index components are¬†rebalanced quarterly.

SPLV didn’t avoid the downturn of the previous 3 months. Yet it did minimize the impact through a healthy helping of Utilities (29%) and Consumer Staples (25%). Moreover, the anticipated yield is greater than 3%.

Take note of SPLV’s outperformance below. In fact, it reminds me¬†of another investment that I profiled recently, the WisdomTree Dividend Ex-Financials Fund (DTN). (Review Adjusted For Risk, Ex-Financials ETF Beats The S&P 500.)

SPLV 3 Months

You can listen to the¬†ETF Expert Radio¬†Show¬†‚ÄúLIVE‚ÄĚ,¬†via podcast or on your iPod.¬†You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

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