SPDR Files for Low Volatility ETFs - ETF News And Commentary
December 07 2012 - 8:34AM
Zacks
The ETF industry is back at it again, seemingly undeterred by
the large number of closures earlier in the year. A host of new
funds have had their debut in the past few months, while issuers
are once again putting more products into the pipeline.
In continuing this trend, State Street has just released new
plans via an SEC filing for two U.S. focused ETFs. The proposed
products look to target different cap levels of the U.S. market,
but with a spotlight on securities that have low volatility levels
(see 4 Low Volatility ETFs to Hedge Your Portfolio).
If these can come to the market soon, they could take advantage
of the current state of affairs in which lower risk securities are
in high demand thanks to broad geopolitical risk both at home and
abroad. While most details were not released in the initial
filing—such as expense ratio and ticker symbol—we will discuss a
few of the key points regarding the proposed ETFs below:
SPDR Russell 1000 Low Volatility ETF
This proposed product looks to track the Russell 1000 Low
Volatility index, a benchmark of about 200 securities that have a
lower return variable than the overall market. Since it is tracking
a large cap benchmark, the fund looks to be focused in on the
safest of all the securities in the space, limiting growth
potential but also mitigating volatility overall (read Three Low
Volatility ETFs for Stormy Markets).
SPDR Russell 2000 Low Volatility ETF
The second ETF in the filing looks to follow the Russell 2000
Low Volatility Index, a benchmark that will possess no more than
400 securities, and will be reconstituted on a monthly basis.
Investors should note that the Russell 2000 is a small cap
benchmark, so this could be a safer way to target the space, though
it could also reduce the growth potential in this proposed ETF.
Low Volatility ETF Competition
The move by SPDR to propose these ETFs suggests that there is
still an appetite for these kinds of securities despite there being
a good number of choices already out there in the space. Currently,
there are over half a dozen low volatility options on the market,
although just three track a U.S. benchmark.
Easily the most popular is the PowerShares S&P 500
Low Volatility Portfolio (SPLV), which has over $3 billion
in total AUM. The ETF zeroes in on low volatility securities in the
S&P 500, holding 100 stocks in total and charging investors 25
basis points a year in fees for the service (see Six Easy Ways to
Target Low Volatility Stocks with ETFs).
It is also worth noting that this fund, along with all others in
the space, have come out within the last 18 months or so,
suggesting that the move to low volatility options has begun just
recently. Given this, the proposed ETFs from State Street could be
jumping into a hot market, suggesting that if they can keep costs
down and volatility low, they could see big inflows and solid
investor interest, assuming they can pass the SEC’s regulatory
hurdles.
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