2023-07-09 09:58:35 ET
Summary
- The key selling point of SPLV is its ability to offer downside protection during market downturns, making it an attractive choice for long-term investors.
- SPLV's sector allocations play a crucial role in its ability to mitigate market fluctuations.
- If you're getting increasingly nervous about equities but still want exposure, it becomes a unique solution.
For fast-acting relief, try slowing down. - Lily Tomlin
The Invesco S&P 500 Low Volatility ETF ( SPLV ) is a passively managed exchange-traded fund that tracks the performance of the S&P 500 Low Volatility Index. This index comprises the 100 least volatile stocks (measured by standard deviation) from the S&P 500 Index, making SPLV a strategic choice for investors seeking exposure to large-cap equities with a lower risk profile.
SPLV: A Closer Look
SPLV was launched on May 5, 2011, under the sponsorship of Invesco. Since its inception, the fund has accrued assets surpassing $9 billion, carving out a significant niche in the large-cap blend segment of the U.S. equity market.
SPLV's Key Features
- Expense Ratio: SPLV comes with an annual operating expense of 0.25%, aligning it with most peer products in its category. It's worth noting that lower expense ratios can significantly enhance long-term returns, given other factors remain constant.
- Dividend Yield: The ETF offers a trailing 12-month dividend yield of 2.26%, creating a steady income stream for investors.
- Sector Exposure & Top Holdings: A deep dive into SPLV's holdings reveals its highest allocation to the Consumer Staples sector, which constitutes about 23.20% of the portfolio. Utilities and Healthcare follow closely. The top three holdings are Johnson & Johnson ( JNJ ), PepsiCo Inc ( PEP ), and McDonald's Corp ( MCD ).
SPLV's Performance in Different Market Conditions
The key selling point of SPLV is its ability to offer downside protection during market downturns, making it an attractive choice for long-term investors. While it has underperformed in bullish markets, this underperformance is offset by its robust performance during bearish periods. We can see this by looking at the price ratio of SPLV to the S&P 500 ( SPY ) historically, with SPLV outperforming meaningfully during bearish periods. This makes sense given it's overweights to Consumer Staples ( XLP ), Health Care ( XLV ), and Utilities ( XLU ).
It's worth noting that despite the overall strong June for risk assets, SPLV largely kept in-line. This may indeed be a warning signal in and of itself to see defensiveness keep up in a strong month.
SPLV's Sector Allocations: An Edge in Volatile Times
SPLV's sector allocations play a crucial role in its ability to mitigate market fluctuations. Its portfolio is heavily geared towards defensive sectors, with Consumer Staples, Health Care, and Utilities accounting for approximately 66% of the portfolio. This contrasts with a mere 24.3% representation of these sectors in the S&P 500 index. In uncertain market conditions, diversification across various sectors can provide a buffer against risks, making SPLV a strong contender for investors seeking a defensive strategy.
Should You Invest in SPLV?
While SPLV presents a compelling case as a defensive strategy in a volatile market, it's not without its risks. The fund's exposure to the Utilities sector and its holding of low-profitable stocks could pose challenges in an economic recession.
However, broadly speaking, it's a lower volatility way of playing the broader stock market. So if you're getting increasingly nervous about equities but still want exposure, it becomes a unique solution, especially if I'm still right that the bear market is not over.
For further details see:
SPLV: Slowing Down Entering The Potential Storm For Stocks Ahead