Minimum Volatility ETFs are More Popular Than Ever

Earlier this year, minimum volatility ETFs had already began receiving huge inflows. With volatility now on the rise, these ETFs are receiving even more attention.

Once upon a time (just six trading sessions ago), the VIX (Volatility Index) was below $12. Since then we have seen an explosion briefly above $20 (VIX traded as high as $20.51 on an intraday basis last Friday) and a bit of a retreat back below the 200 day MA of the Index, closing at $16.30 yesterday.

In sympathy, trading volume has gravitated in a big way to the “Volatility” suite of ETPs in the marketplace such as:

  • VXX (iPath S&P 500 VIX Short-Term Futures ETN, Expense Ratio 0.89%),
  • UVXY (ProShares Ultra VIX Short-Term Futures ETF, Expense Ratio 0.95%),
  • TVIX (VelocityShares Daily 2X VIX Short-Term ETN, Expense Ratio 1.65%),
  • SVXY (ProShares Short VIX Short-Term Futures ETF, Expense Ratio 0.95%),
  • XIV (VelocityShares Daily Inverse VIX Short-Term ETN, Expense Ratio 1.35%), and
  • VIXY (ProShares VIX Short-Term Futures ETF, Expense Ratio 0.85%)

In some cases, some of these products are trading at or near new all-time products highs. Amid this sudden climb in overall market volatility, we have to look at the “Low Volatility Equity” suite of ETFs, which includes the iShares Edge MSCI Minimum Volatility USA (NYSE:USMV) (Expense Ratio 0.15%), since these funds have historically attracted strong flows during such times.

USMV is now a $14.1 billion fund, and seems to be growing by leaps and bounds, having reeled in more than $6 billion just year-to-date. USMV has grown so quickly that it is actually the second largest ETF in the “All Cap Equity” space behind the $63 billion VTI (Vanguard Total Stock Market, Expense Ratio 0.05%).

PowerShares also has an entry in the “Low Volatility Equity” space that we see is actually classified as a “Large Cap Blend Equity” product as opposed to “All Cap,” and this fund SPLV (PowerShares S&P 500 Low Volatility Portfolio, Expense Ratio 0.25%) is no slouch in terms of asset size either, having raised $6.9 billion since its 2011 inception, including $891 million in inflows year-to-date.

When we look at USMV more closely, we see a nice spread across market-caps in terms of portfolio exposure in Large and Mid-Caps, with 31% of the portfolio residing in Mega-Caps, 45% in Large Caps, and 23% in Mid-Caps. From a sector standpoint, Health Care leads the way (20%), followed by Consumer Staples (16%), and Industrials (11%).

Top holdings in USMV at the moment are as follows: 1) GIS (1.59%), 2) PAYX (1.56%), 3) PG (1.53%), 4) T (1.52%), and 5) JNJ (1.51%).

USMV-2016-09-16

USMV shares fell $0.26 (-0.57%) to $44.97 in Friday afternoon trading. Year-to-date, USMV has risen 7.51%.


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.