PowerShares S&P 500 Low Volatility Portfolio
I have been a big fan of low-volatility ETFs since the initial launch of the PowerShares S&P 500 Low Volatility Portfolio (SPLV) back in 2011. The basis behind the strategy for this ETF is to take the underlying S&P 500 Index and identify a subset of 100 stocks that have the lowest price volatility for the last quarter.
What you are left with is a unique portfolio of stocks that typically have very steady returns and smaller price fluctuations. The top sectors within SPLV include utilities, consumer staples and financials, which combined make up nearly 70% of the fund’s asset allocation. That leaves you with stocks such as Johnson & Johnson (JNJ), NextEra Energy (NEE) and Kellogg (K).
Generally you will see these low-volatility funds decline less than their fully loaded index peers during periods of price decline. For trend followers and active managers, these funds may give us the ability to stay invested during periods of short-term market corrections instead of getting stopped out of a position.
This ETF makes an excellent addition to any portfolio as a core large-cap holding in a diversified investment vehicle. In addition, PowerShares also has low-volatility ETFs available in small-cap, midcap and international regions.