As overall market volatility has decreased, the latest rebalance of Invesco S&P 500 Low Volatility ETF’s (SPLV ) underlying index brought some changes to the sector weights.
The overall trailing one-year volatility decreased slightly since the end of January. Nine out of the 11 GICS sectors saw a decrease in trailing one-year volatility during that period, with the greatest change in the information technology and consumer discretionary sectors, George Valantasis, S&P Dow Jones Indices’ associate director for strategy indices, wrote on June 8.
The only sectors in which volatility has increased since the end of January were real estate and utilities, which increase 0.3% and 0.4%, respectively. The five most volatile sectors in the S&P 500 are energy, consumer discretionary, communication services, information technology, and real estate as of April 28, Valantasis wrote.
In the latest quarterly rebalance on May 19, SPLV’s underlying index – the S&P 500 Low Volatility Index — added 4% weight to consumer staples and 1% to communication services and real estate. Utilities and financials saw their weight scaled back during the rebalance, losing 3% and 1%, respectively.
“Due to its quarterly rebalancing and lack of sector constraints, SPLV can shift more easily to lower risk securities,” Todd Rosenbluth, head of research at VettaFi, said. “A tilt toward consumer staples could help during the summer months given the stable cash flows generated in the sector.”
Under the Hood of the Low Volatility Index
The S&P 500 Low Volatility Index comprises the 100 securities from the S&P 500 with the lowest realized volatility over the past 12 months. Since the last quarterly rebalance, the index is most underweight to the communication services, information technology, and real estate sectors.
Invesco has four other funds that offer a similar low volatility strategy as SPLV but provide different exposures. The other funds in the low volatility suite include the Invesco S&P MidCap Low Volatility ETF (XMLV ), the Invesco S&P SmallCap Low Volatility ETF (XSLV ), the Invesco S&P International Developed Low Volatility ETF (IDLV ), and the Invesco S&P Emerging Markets Low Volatility ETF (EELV ).
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