Investors Flee Low-Volatility Funds As VIX Crashes Again (SPLV)

money flow

We recently pointed out some profit taking in one of the largest “Low Volatility Equity” ETFs this morning in our Fund Flows recap, with $650 million leaving SPLV (PowerShares S&P 500 Low Volatility Portfolio, Expense Ratio 0.25%, $6.6 billion in AUM) via redemption flows.

If we look at trailing one year performance, SPLV is performing as one might expect in a bull equity market where investors seem rather comfortable embracing historically risky assets such as Small-Caps, Emerging Markets, and High Yield Bonds for example, as it is trailing the S&P 500 market capitalization weighted index by more than 500 basis points, but turning in a respectable positive number anyhow.

SPLV is presently the third largest “Low Volatility Equity” ETF in the U.S. listed landscape, behind the $13 billion USMV (iShares Edge MSCI Minimum Volatility USA, Expense Ratio 0.15%) and the $6.7 billion EFAV (iShares MSCI EAFE Minimum Volatility, Expense Ratio 0.20%).

In fact, outside of SPLV, iShares is the sponsor of four of the top five ETFs in this space, having had success since the Low Volatility Equity craze began in late 2011.

As its name suggests, SPLV is based on the S&P 500 Index itself but according to fund literature:

“[SPLV] employs an unconstrained approach which means it can dynamically respond to market conditions. In contrast, other low volatility indexes have sector constraints that prohibit them from staying too far from a particular sector allocation. This unconstrained approach historically helped buffer portfolios during down markets and may help investors’ weather market uncertainty.”

Reading statements such as this would likely result in the conventional thought process rationalizing why some investors may be liquidating funds like SPLV in the current market environment, especially if they believe that the VIX, which has traded below $10 this morning, may be depressed for months on end and that the bull market will continue.

This said, when PowerShares launched SPLV they also came to market with a sister fund known as SPHB (PowerShares S&P 500 High Beta Portfolio, Expense Ratio 0.25%, $246 million in AUM), which is substantially smaller in AUM size as compared to SPLV. However, if the sellers in SPLV are motivated by a willingness to embrace a higher amount of beta for potentially higher returns and are not concerned with high volatility creeping into the market in the near term future, we may see an uptick in interest in funds such as SPHB.

The PowerShares S&P 500 Low Volatility Portfolio (NYSE:SPLV) was trading at $44.65 per share on Thursday morning, up $0.21 (+0.47%). Year-to-date, SPLV has gained 7.38%, versus a 8.02% rise in the benchmark S&P 500 index during the same period.

SPLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #8 of 75 ETFs in the Large Cap Value ETFs category.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.