FMD Capital Management

Low Volatility is Always a Good Thing

Written by David Fabian, March 16th, 2013

Today PowerShares announced that they would be expanding their suite of low volatility ETFs with two additional funds that are set to launch on Friday February 15, 2013.  These strategies include:

  • PowerShares S&P MidCap Low Volatility Portfolio (XMLV)
  • PowerShares S&P SmallCap Low Volatility Portfolio (XSLV)

We have been a big fan of low volatility ETFs for some time now since the initial launch of the PowerShares S&P 500 Low Volatility Portfolio (SPLV) back in 2011.  The basis behind the strategy for these funds is to take the underlying S&P indexes and indentify a subset of stocks (typically 80-120) 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.

Generally you will see these low volatility funds decline less than their fully loaded index peers during periods of price declineFor 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. 

These funds make an excellent addition to any portfolio as a core holding that can represent small, mid, or large cap stocks in a diversified investment vehicle.  In addition PowerShares also has low volatility indexes in both the Emerging Markets and MSCI EAFE regions.  For more information about these funds visit www.powershares.com.