Slicing And Dicing The S&P 500 With ETFs

The S&P 500 is arguably the benchmarks of benchmarks. It is one of the most widely followed equity indexes in the world and in the United States, the traditionally-weighted exchange traded funds that track the S&P 500 – the SPDR S&P 500 ETF SPY, iShares Core S&P 500 ETF IVV and the Vanguard S&P 500 ETF VOO – have a combined $262.8 billion in assets under management.

For its part, SPY is the largest ETF in the world. Investors can go beyond the prosaic with S&P 500 ETFs with S&P 500 ETFs because scores of funds track benchmarks that can be seen as derivatives to the S&P 500.

A well-known offshoot of the S&P 500 is the PowerShares S&P 500 Low Volatility Portfolio SPLV. One of the largest low volatility ETFs, SPLV tracks the S&P 500 Low Volatility Index. That index is comprised of the 100 S&P 500 members with the lowest trailing 12-month volatility.

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SPLV has a new cousin that is also a play on low volatility with the benefit of protection from rising interest rates. The PowerShares S&P 500 ex- Rate Sensitive Low Volatility Portfolio XRLV follows the S&P 500 Low Volatility Rate Response Index, which is “composed of the 100 constituents of S&P 500 Index that exhibit both low volatility and low interest rate risk,” according to PowerShares.

XRLV debuted in April and has almost $99 million in assets under management, making it one of the most successful ETFs to debut this year.

“XRLV has less exposure to utilities (0% vs. 4.5% for SPLV) and consumer staples (16% vs. 22%) and more exposure to industrials (20% vs. 15%) and health care (15% vs. 10%). Both ETFs are rebalanced quarterly,” said S&P Capital IQ in a new research note.

Another new and, arguably, sophisticated approach to the S&P 500 is the Elkhorn S&P 500 Capital Expenditures ETF CAPX.

CAPX follows the S&P 500 Capex Efficiency Index, “which is designed to provide exposure to constituents of the S&P 500 that have exhibited strong capital discipline in the form of efficient capital expenditures,” according to Elkhorn.

Said another way, the 99 companies held by CAPX are notable generators of cash and have a proclivity for reinvesting that cash back into their businesses.

CAPX looks at companies that have made efficient use of the capital spending by generating relatively strong sales growth ,” said S&P Capital IQ. “Relative to the broader S&P 500 index, exposure to consumer staples (5%) was light and there were no telecom services holdings. The ETF has a 0.29% expense ratio and trades with a $0.03 bid/ask spread.”

The research firm has an overweight rating on CAPX, which debuted in May.