Low Volatility ETFs
A low volatility ETF screens its potential holdings based on the volatility of the market price or the volatility of the returns of the stock. Low volatility ETFs select more securities that have lower volatility than average. Although low volatility ETFs can outperform the market, low volatility ETFs are not necessarily designed to outperform the market. Rather, they attempt to appeal to investors who prefer less volatility. Certain investors are willing to give up a little return for a more consistent, stable return.
There are a large number of low volatility ETPs, as shown in this table:
| Name | Symbol | Last price | Currency |
|---|---|---|---|
| SPDR SSGA US Large Cap Low Volatility In | ARCX:LGLV | 166.02 | USD |
| iShares Edge MSCI Min Vol EAFE ETF | BATS:EFAV | 70.26 | USD |
| SPDR SSGA US Small Cap Low Volatility In | ARCX:SMLV | 128.58 | USD |
| INVESCO S&P INTERNATIONAL DE | ARCX:IDLV | 27.86 | USD |
| First Trust Emerging Markets Equity Select ETF | XNAS:RNEM | 49.63 | USD |
| iShares Edge MSCI Min Vol Emerging Marke | BATS:EEMV | 58.01 | USD |
| INVESCO S&P 500 LOW VOLATILI | ARCX:SPLV | 70.28 | USD |
| TIMOTHY PLAN US SMALL CAP CO | ARCX:TPSC | 39.28 | USD |
| ETRACS 2x Leveraged MSCI US Minimum Volatility Factor TR ETN | ARCX:USML | 38.41 | USD |
| INVESCO S&P EMERGING MARKETS | ARCX:EELV | 23.87 | USD |
| TIMOTHY PLAN INTERNATIONAL E | ARCX:TPIF | 26.57 | USD |
| iShares Edge MSCI Min Vol USA Small-Cap | BATS:SMMV | 41.62 | USD |
| Fidelity Low Volatility Factor | ARCX:FDLO | 61.08 | USD |
| iShares Edge MSCI Min Vol Global ETF | BATS:ACWV | 109.30 | USD |
| Invesco S&P SmallCap Low Volatility ETF | XNYS:XSLV | 47.82 | USD |
| Invesco S&P MidCap Low Volatility ETF | XNYS:XMLV | 61.23 | USD |
| THOR Financial Technologies Trust THOR Low Volatility ETF | XNYS:THLV | 27.67 | USD |
| iShares Edge MSCI Min Vol USA ETF | BATS:USMV | 89.44 | USD |
Keep in mind that investors that use the Sharpe Ratio to build and analyze portfolios will tend to favor low volatility ETFs. The Sharpe Ratio rewards low volatility ETFs, because a low volatility ETF that generates the same return as its benchmark will have a higher Sharpe Ratio. Here are the lifetime Sharpe Ratios for USMV and SPLV (i.e. Sharpe Ratios calculated using the lifetime of the ETFs), compared to the Sharpe Ratio of SPY during the same matching periods:
Since these ETFs have higher Sharpe Ratios, it means they have outperformed SPY on a risk adjusted basis.