On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Invesco S&P 500 Low Volatility ETF (SPLV ) with Chuck Jaffe of Money Life. The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Chuck Jaffe: One fund, on point for today. The expert to talk about it. Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, head of research of VettaFi. If you go to VettaFi.com, you’ll get all the tools you need to be a savvier, smarter, ETF investor, and to get more details on the new, newsworthy, trending, and timely ETFs that we talk about here.
Todd Rosenbluth, it’s great to chat with you again.
Todd Rosenbluth: It’s great to be with you, Chuck.
Chuck Jaffe: Your ETF of the week is …
Todd Rosenbluth: The Invesco S&P 500 Low Volatility ETF. SPLV.
Chuck Jaffe: SPLV. The Invesco S&P 500 Low Volatility ETF. Now, I know it has been ETF of the Week before, but not during your tenure as the expert we’re talking to on ETF of the Week. So what brings this up for you now?
Todd Rosenbluth: Well, September and October tend to be the most volatile months for the calendar year. We’re in it right now. We’ve already seen that volatility. We know many investors, advisors are using the S&P 500 as their core equity exposure. SPLV can be a great bolt-on to reduce the risk profile. This is the 100 least volatile stocks within the S&P 500.
And it’s rebalanced on a regular basis. So, you’re tilting to the more defensive areas of the marketplace. And we think now is a time for some investors to take a closer look at that.
Chuck Jaffe: These stocks are already pretty much in everyone’s portfolio because you’ve got S&P 500 exposure, or you’ve got large-cap growth exposure, whatever you want to say. So, from that standpoint, it does not diversify your portfolio. Is this more about stabilizing your portfolio? Like, is this a case of you want to put some of your S&P money into this, or you’re putting your extra money to just kind of make the whole thing a little more stable?
Todd Rosenbluth: So, I think there are a couple of use cases for investors that they may already be doing. And if they’re not, then they may want to consider doing. One is to take a slice of their S&P 500 large-cap exposure and add an ETF like SPLV to bolt on to it. So you reduce the risk profile, but stay within that same large-cap space.
You lean toward some of those more defensive sectors that tend to hold up in market volatility, but also can perform well. So, you’re thinking about utilities, consumer staples. Financials is actually a relatively large weighting. It’s been relatively stable.
The second use case is this could be a large-cap core for risk-concerned or risk-conscious investors. So, you get those large-cap stocks. You participate in some of that upside.
You participate in less of the downside. But this could be a core. Now it obviously isn’t going to keep up with the S&P 500 during bullish time periods. But it’s actually holding up and doing quite well this year. When we were coming into this recording, it was largely neck-and-neck for the year because since June, we’ve seen those more defensive sectors, sectors like financials, sectors like healthcare, consumer staples, utilities do better than technology. We’ve seen a bit of reversal in the market in the last couple of months.
Chuck Jaffe: As for this fund and low volatility … you know, low volatility means different things to different funds. In this case, as you point out, it’s the 100 lowest volatility stocks in the S&P 500. Is this a case where you prefer passive management, which is going to take 100, as opposed to an active low-vol manager who might go, “there’s only 50 or 60 stocks that I consider low volatility in the S&P 500.”
Do you like having the index construction, or is there a case to be made that if you truly wanted to be low-vol, you might want somebody picking it more actively for you?
Todd Rosenbluth: This is a keep-it-simple, fill-in-the-blank that I don’t want to finish the whole K-I-S-S acronym for it for the investors. If you own the S&P 500, you’re getting the same exact stocks, and you’re doing it as one-fifth of the portfolio, and it’s getting rebalanced on a scheduled time period. And you know what you own, and you know exactly why you own it.
There is certainly always a case for active management. There’s a case for choosing a subset. There’s a case for having it being sector-aware. There are more or alternative ETFs that have low volatility, or have low volatility in the name or minimum volatility, which is kind of the same thing, that have more exposure towards the growth-oriented sectors. This is quite simple.
One hundred of the least volatile stocks, rebalanced on a quarterly basis. It won’t always have heavyweights within consumer staples and utilities. Financials is actually larger than I expected when I looked at the portfolio. But that’s what the math shows. These companies have less beta in the most recent time period, and they make a lot of sense.
So, there’s a case for active. There’s a case for index. It just matters what you’re adding it into your broader portfolio.
Chuck Jaffe: The other side of this is that there are times when you and I are talking about funds that are best used as tilts. And this could be considered a fund that’s a tilt. But this could also be a core allocation. You want the S&P 500. You want the low volatility, I mean, is this — and I know you will never say anything is a forever hold, but, is this kind of buy-and-hold it pretty much, unless something really strange happens? Like this is a core piece of whatever you’re doing for as long as you do it?
Todd Rosenbluth: So, this can certainly be a core piece. If you are more risk aware, you want a lower-risk way of getting large-cap equity exposure. SLPV can be a great choice for that. We’re talking about it now because from a tactical standpoint, it could make sense. The market has historically been more volatile in September and October, heading into the election.
We certainly see some investors that might want to tilt a bit more defensive, and then rotate back. Historically, the market favors more cyclical sectors once we get into the November through April time period. And so we certainly see some investors using this as a risk reduction effort before they’re moving to take on additional risk heading into the end of the year.
Chuck Jaffe: It’s the Invesco S&P 500 Low Volatility ETF. SPLV. The ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff as always. See you again next week!
Todd Rosenbluth: Stay well, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yeah, I’m Chuck Jaffe, and I would love it if you would check out my hour-long weekday show at MoneyLifeShow.com, or at your favorite podcast app.
And if you’re checking out your favorite ETFs or the ETFs we talk about here, well, you should do that at VettaFi.com, where they’ve got the full suite of tools that’s going to help you to be not just up and running, but running well and fast and smart. They’re on Twitter at @Vetta_Fi.
Todd Rosenbluth, my guest, their head of research. He’s on X or Twitter as well at @ToddRosenbluth. Now, the ETF of the Week is here for you every Thursday. Make sure you don’t miss any episodes by following along on your favorite podcast app. We’ll be back with another great fund for you next week. And until then, happy investing everybody!
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