Research company CFRA on Monday said it was upgrading a low-volatility exchange-traded fund that has a history of underperforming, saying its recent record and defensive portfolio may give it an edge in the future.
The Invesco S&P 500 Low Volatility ETF
beat the broader market during the March selloff, CFRA’s head of ETF and mutual fund research, Todd Rosenbluth, wrote in an analysis. But it’s lagged behind in the April rally.
The fund, often abbreviated to its ticker, SPLV, has underperformed during other periods, as well. Last summer, when investors were navigating choppiness caused by global central bank rate cuts and an intensifying trade war, SPLV trailed a more popular competitor, the iShares Edge MSCI Min Vol U.S.A. ETF
USMV, which has about $33 billion in assets, compared with SPLV’s $9.5 billion, according to FactSet data, takes what various analysts have called a “more holistic” approach to managing volatility, considering how stocks in its portfolio will interact with each other. It starts with a broader basket of stocks, as well: the MSCI U.S.A. Index, which contains over 600 stocks. In contrast, SPLV simply picks the least volatile stocks in the S&P 500 index
SPLV’s approach, coupled with its underperformance of the past few weeks, “adds to its risk mitigation appeal,” Rosenbluth wrote.
As of late April, SPLV’s portfolio tilted more heavily toward utilities and real estate than the broader S&P 500, and was less exposed to consumer discretionary and health care stocks. CFRA thinks the time is right for rotation to more defensive sectors, Rosenbluth noted.
USMV charges a 15-basis point management fee, while SPLV charges 25 basis points. For the year to date, USMV is down 11.8%, according to FactSet, while SPLV has lost 16.5%. the S&P 500 is down more than 13%.