Low-Volatility ETF 2017
It is possible to achieve your investment goals earlier than expected. How? By finding success with low-volatility investments, which are notable for their ability to preserve capital.
The focus of this article will be looking at both the best low volatility ETFs, based on capital preservation and steady income. Also featured is a list of the best low-volatility dividend ETFs, including low-volatility ETFs, S&P low-volatility ETFs, ETFs with global exposure, and ETFs with exposure to only the U.S.
Before getting into the list of the best ETFs here are the benefits of owning an ETF in your investment portfolio.
2 Benefits of Owning a Low-Volatility ETF
Here are three benefits of owning a low-volatility dividend ETF.
1. Steady Income
Let’s compare an individual stock to an ETF. With a dividend stock, the reliability of the income source is huge, since earnings per share need to be steady for the sake of the dividend. However, there is the option to reduce or eliminate the dividend the moment that the revenue cannot support it. Needless to say, this is not good news for investors.
Owning an ETF removes the risk of the dividend being cut or stopped. In fact, there is actually a higher probability of the dividend growing. The reason the dividend is safe is that there are many different investments held within a single ETF sometimes one ETF will hold hundreds of stocks. As a result, the dividend of a single stock taking a hit wouldn’t really impact the dividend since it represents such a small portion of the ETF. Also, if another stock increased its dividend, that would offset the decrease in the other.
2. Low Volatility Advantage
There are two factors that contribute to the total return: the income dividend and the capital gain. Capital gain comes from purchasing an investment at a lower price and selling it at a higher one. Owning an investment for a long time reduces the overall risk because there is a higher probability of the investment trading at a higher price.
For a better chance of this, consider low-volatility ETFs, which preserve the capital investment. When the markets see a negative return, low-volatility investments are the ones that tend to see a market outperform. And in a rising market, these investments will see positive returns as well.
Now let’s take a look at the list of the best low volatility dividend EFTs in 2017.
List of the Best Low-Volatility ETFs
| Sr.No | ETF Name | Ticker Symbol | Security |
| 1 | Ishares Edge MSCI Minimum Volatility USA ETF | USMA | Equities |
| 2 | iShares Edge MSCI Minimum Volatility EAFE ETF | EFAV | Equities |
| 3 | PowerShares S&P Low Volatility Portfolio | SPLV | Equities |
| 4 | PowerShares S&P MidCap Low Volatility Portfolio | XMLV | Equities |
| 5 | SPDR SSGA Small Cap Low Volatility Index ETF | SMLV | Equities |
| 6 | Goldman Sachs ActiveBeta International Equity ETF | GSIE | Equities |
| 7 | Janus Short Duration Income ETF | VNLA | Bonds |
| 8 | Goldman Sachs Access Investment Grade Corporate Bond ETF | GIGB | Bonds |
| 9 | O’Shares FTSE Europe Quality Dividend ETF | OEUR | Equities |
Ishares Edge MSCI Minimum Volatility USA ETF (NYSEARCA:USMV) tracks the results of the MSCI USA Minimum Volatility Index. The index is made up of equity securities listed on U.S. trading exchanges and in the top 85% based on market capitalization. Only securities with lower volatility than the broad U.S. markets are owned and considered.
The fund invests at least 90% of the total capital in the securities in the index. The remaining funds are invested in futures, options and swap contracts, and cash or cash equivalent investments.
The fund is very diversified, with more than 10 sectors represented. The top three sectors are healthcare, information technology, and consumer staples. Even though the companies only trade on the U.S. exchanges, their revenue is generated. The brands are very powerful, with names such as McDonald’s Corporation (NYSE:MCD), PepsiCo, Inc. (NYSE:PEP), and Johnson & Johnson (NYSE:JNJ).
The dividend is paid out on a quarterly basis. The trend has been increases as time passes.
iShares Edge MSCI Minimum Volatility EAFE ETF (NYSEARCA:EFAV) uses the MSCI EAFE Minimum Volatility Index as its benchmark index. The index is made up of securities that are based on developed markets and do not include any securities trading on any U.S. or Canadian exchanges; the focus is on securities with a lower relative volatility. At least 90% of the assets within the ETF are invested in the securities that make up the benchmark index.
This ETF provides lower volatility then the overall markets and exposure to investments abroad. History has seen that EFAV does outperform the broader markets and has had a more favorable return.
The dividend is paid out on a semi-annual basis, tending to be paid in June and December of every year. EFAV is a dividend grower, with consistent growth over time.
PowerShares S&P Low Volatility Portfolio (NYSEARCA:SPLV) attempts to track the price and yield of the S&P 500 Low Volatility Index. At least 90% of the total assets are invested in common stocks that comprise the underlying index at all times. Generally the investments within the ETF are represented in the same proportion to their weightings in the underlying index.
SPLV is rebalanced every February, May, August, and November. Rebalancing is when positions within the ETF are either trimmed down because the position is too large or increased so they contribute more to the ETF’s performance. Also, if the underlying index has seen any changes, such as a removal or addition of a security, this would be reflected in the rebalancing.
There are 100 holdings within SPLV and no one position represents more than two percent of the total capital. The holdings include some of the largest companies in the world with steady and reliable income, like 3M Co (NYSE:MMM), Walt Disney Co (NYSE:DIS), and The Coca-Cola Co (NYSE:KO).
PowerShares S&P MidCap Low Volatility Portfolio (NYSEARCA:XMLV) seeks the investment results of the S&P MidCap 400 Low Volatility Index. The ETF’s holdings cannot go above 80 securities and are selected from 400 stocks that are part of the index. Only the securities with the lowest volatility over the past 12 months are considered. From all the capital within XMLV, $9.00 of every $10.00 will be invested.
There are eight different sectors within XMLV, which adds to the diversification of the investments. The sector with the largest representation is real estate, which has more of a focus on real estate investment trusts (REITs).
Another benefit is the very low management expense ratio (MER), the annual fee paid to management, the ones who decide which securities should be part of the ETF. This also includes the total percentage allocation of capital to each security and sector. XMLV’s MER ratio is 0.25%, which simply means that for every $10,000 in the ETF, management receives $25.00. This is only pennies on the dollar for an investor to get exposure to 80 mid-cap stocks that offer a dividend and capital preservation.
#5 SPDR SSGA Small Cap Low Volatility Index ETF
SPDR SSGA Small Cap Low Volatility Index ETF (NYSEARCA:SMLV) attempts to track the results of the SSGA U.S. Small Cap Low Volatility Index. The index is focused on owing small-cap companies that serve as low-volatility investments that trade on U.S. exchanges. The fund ensures that at least 80% of the capital is invested in the securities that make up the benchmark index.
Small-caps are an area that many investors stay away from because of the due diligence required compared to large-cap companies. That said, SMLV is a great way to get exposure to the small-cap area of the market without spending hours of time researching companies. Another benefit is diversification, given the over 400 securities within the ETF. SMLV has capital deployed in 10 different sectors, the top three being financial services, producer durables, and consumer discretionary.
Also Read:
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#6 Goldman Sachs ActiveBeta International Equity ETF
Goldman Sachs ActiveBeta International Equity ETF (NYSEARCA:GSIE) seeks to provide investment results that correspond to the Goldman Sachs ActiveBeta International Equity Index. GSIE invests $8.00 out of every $10.00 in securities that are part of the underlying index. The holdings are large-cap securities based in developing markets, which excludes the U.S.
The top three countries reflected in the holdings are Japan, the U.K., and France, adding global diversification. In addition, there is sector diversification, with more than 10 sectors represented, including the likes of the financial sector, consumer staples, and consumer discretionary.
There is also a growing dividend that is paid out on a quarterly basis.
#7 Janus Short Duration Income ETF
Janus Short Duration Income ETF (NYSEARCA:GIGB) attempts to outperform the three-month LIBOR rate by owning low-volatility investments, offering a steady income stream, and preserving the investment’s capital. This is an investment product that gives exposure to the bond market through high-quality investment-grade bonds or similar-quality bonds as determined by Janus Capital. The fund may at times may invest 70% of the capital into foreign bond investments.
The fund has a 15% cap on high-yield securities, emerging markets, and foreign exchange. Management looks to invest in inefficiencies in the fixed income marketplace by owning various sectors in geographic regions around the world. The target duration for investments is up to two years.
#8 Goldman Sachs Access Investment Grade Corporate Bond ETF
Goldman Sachs Access Investment Grade Corporate Bond ETF (NYSEARCA:GIGB) seeks to provide similar performance investment results to the Citi Goldman Sachs Investment Grade Corporate Bond Index. The fund’s management team ensures that at least 80% of the assets are invested in securities included in the underlying index. The underlying index is a rule-based index which is designed to measure the performance of investment-grade and corporate bonds that are denominated in U.S. dollars.
There are similar types of ETFs on the markets, but GIGB has a competitive advantage: it charges a very low MER of 0.14%, paid to the administration for commission trading costs, research reports, and regulatory fees. For investors, this is a bargain.
O’Shares FTSE Europe Quality Dividend ETF (NYSEARCA:OEUR) uses the FTSE Developed Europe Qual/Vol/Yield Factor 5% Capped Index as its benchmark. From every $10.00 invested, at least $8.00 is invested in securities that make up the index. The index is designed to measure the performance of large- and mid-cap dividend-paying companies in Europe. The securities have to meet all the requirements, which include certain market caps, liquidity, high-quality revenue generation, low volatility, and dividend yield thresholds.
Within OEUR are more than 150 companies, with no holding representing more than six percent of total capital. The securities are reviewed every quarter to ensure they still meet all the above requirements. More than half the capital is invested in the the top three sectors: consumer defensive, healthcare, and industrial sector.