Zacks Investment Ideas feature highlights: S&P 500 Low Volatility ETF, MSCI All Country World Minimum Volatility Index and MSCI Emerging Market Minimum Volatility Index

Mar 01, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, March 1, 2013 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: S&P 500 Low Volatility ETF (AMEX: SPLV), MSCI All Country World Minimum Volatility Index (AMEX: ACWV) and MSCI Emerging Market Minimum Volatility Index (AMEX: EEMV).


Buy These ETFs for Higher Returns, Lower Risk

According to traditional finance theories—investors demand a higher rate of return for taking greater risks but some of recent empirical studies show that the lower risk stocks have rewarded the investors with higher return than the broader markets over longer-term.

This "low risk anomaly" may be due to "mispricing" of risk by the market or in simple words, it may be a result of too many investors chasing higher risk stocks in anticipation of higher returns and in turn paying too much for such stocks. (Read: 3 Excellent ETFs for Income Investors)

Though the low-volatility concept is relatively new in the ETF universe, it has become extremely popular of late. Low-volatility ETFs pick stocks based on their historical price volatility.

S&P 500 Low Volatility ETF (AMEX: SPLV) was the first product in this space and is so far the most popular, with more than $3.4 billion in assets. It is one of the most successful launches in ETF history.

A series of new low-volatility or minimum volatility ETFs have been launched after SPLV to capitalize on soaring investor interest in this strategy. Four new products were launched this month, expanding the line-up to 12 products in the US. Investors seeking to ride out frequent bouts of volatility in the markets have continued to pour money into these funds.

We have little historical data available for these ETFs but they have outperformed their broader market counterparts since inception. These ETFs effectively protected the downside during market turmoil but they underperformed when the trend was strongly bullish. (Read: Best ETF Strategies for 2013)

For longer-term performance, we looked at the historical data for the indexes that these ETFs track. The table shows annualized returns and standard deviations calculated using monthly index return data for the past five years for the low-volatility indexes and the respective regular indexes.

Index (ETF)

Annualized Return (5 Y)

Annualized Std.Dev. (5 Y)


S&P 500 Low Volatility Index TR (AMEX: SPLV)



S&P 500 TR Index




MSCI All Country World Minimum Volatility Index (AMEX: ACWV)



MSCI All Country World Index



Emerging Markets

MSCI Emerging Market Minimum Volatility Index (AMEX: EEMV)



MSCI Emerging Markets Index



The results (the table above and the follwoing charts) show that the low volatility strategies handily beat the broader markets with significantly less volatility, in the U.S., international and emerging stock markets in the last five years.

While it is true that the markets were in general more volatile during the past five years, we can reasonably expect that going forward the level of volatility in the markets will stay at elevated levels at least in the foreseeable future.

Academic studies suggest that market volatility over extended periods of time is driven by macroeconomic environment. Given extraordinary global macroeconomic conditions and unconventional monetary tools employed by the central banks all over the world, market volatility will continue to be high. (Read: Treasury Bond ETFs-Still Room to run)

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