An ETF With A Unique View Of Low Volatility

With 2015 being a topsy turvy year for equity investors, it is not surprising that the PowerShares S&P 500 Low Volatility Portfolio SPLV and the iShares MSCI USA Minimum Volatility ETF USMV cemented their leadership among low volatility exchange traded funds.

Low volatility stocks outperform their high beta counterparts during times of divergent global monetary policies. That is exactly what investors are dealing with as the Federal Reserve ebbs closer to its first interest rate hike in nine years, while the Bank of Japan, European Central Bank and others engage in easy monetary policies. 

That means 2016 could be another strong year for low volatility ETFs and that the potential leadership of low volatility stocks in 2016 probably will not be limited to the most familiar funds. Going off the beaten path a little bit could yield rewards courtesy of the ALPS Sector Low Volatility ETF SLOW, which debuted in July.

SLOW follows the S-Network Sector Low Volatility Index, which applies equal weighting twice instead of just once as the standard in many equal-weight ETFs. The result is SLOW's 46 holdings range in weight from just under 2.1 percent to nearly 2.3 percent while its sector allocations run from 10.6 percent to 11.7 percent, according to ALPS data. 

Garnering the 11.7 percent weight is the utilities sector, often a top hallmark in many low volatility ETFs, but that weight is tolerable even in a rising rates environment because despite the fact that SLOW devotes over a third of its weight to rate-sensitive sectors, the ETF's equal-weight methodology helps offset that vulnerability with robust exposure to cyclical sectors that have historically thrived as interest rates rise.

Translation: SLOW aims to avoid sector biases and its sector allocations confirm the ETF is doing that. The ETF has traded modestly higher since inception though it remains something of a secret among investors as evidence by just $1.2 million in assets under management.

Well-known holdings in SLOW Dow components Verizon Communications Inc. VZ, Coca-Cola Co. KO and the Travelers Cos. Inc. TRV. Although it is not an explicit dividend fund, as is the case with other low volatility ETFs SLOW offers exposure to some dependable dividend growth stocks. In fact, several of SLOW's holdings, including Coca-Cola, are dividend aristocrats.

Members of SLOW's underlying index, which trades at a price-to-earnings ratio of 17.7, have a weighted average market capitalization of $68.5 billion. The ETF charges 0.4 percent a year, or $40 per $10,000 invested.