Low volatility and high quality are two distinct funding components and whereas they might intersect in some ETFs, it is usually not by design.
However, the FlexShares US High quality Low Volatility Index Fund (NYSE: QLV) makes a degree to mix lowered volatility and high quality shares, making it a probably compelling various to plain “low vol” funds. In spite of everything, it is attainable to have low volatility shares that do not qualify as high quality fare. Likewise, not all high quality shares are docile names.
“Low volatility investing is an try to reduce the fluctuation of the worth of an funding over a time period and is usually thought of as a defensive technique,” in keeping with FlexShares analysis. “Making use of the standard issue to a low volatility technique might enable an investor to seize extra of the market upside potential whereas defending towards draw back dangers.”
The $148.four million QLV turns two years outdated in July and tracks the Northern Belief High quality Low Volatility Index.
A New Tackle Low Volatility
Over the previous yr, the FlexShares ETF has intently adopted the S&P 500 Low Volatility Index. Nevertheless, traders can anticipate these performances to diverge over longer holding intervals given the fund’s high quality overlay.
Moreover, simply 33.6% of QLV’s holdings overlap with these within the S&P 500 Low Volatility Index, and the overlap by weight between the ETF and that index is simply 27.6%, in keeping with ETF Analysis Middle knowledge.
These knowledge factors should not suggest that QLV does not accomplish its low volatility goals.
“The Northern Belief High quality Low Volatility Index traditionally has provided an up market seize ratio of 84% on common, whereas offering a down market seize ratio of 71% on common compared to the broad market index,” notes FlexShares.
QLV additionally has sector-level advantages. For instance, it is considerably chubby the know-how sector relative to the S&P 500 Low Volatility Index, whereas being underweight to defensive client staples and utilities shares.
Put one other approach, it is uncommon to discover a low volatility ETF with almost a 3rd of its roster allotted to development shares, however that is the case with QLV. As simply three examples, Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ:AMZN) mix for nearly 12% of QLV’s weight.
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.