PowerShares unveils S&P 500 Minimum Variance ETF

Jul 18th, 2017 | By | Category: Equities

Invesco PowerShares has launched the PowerShares S&P 500 Minimum Variance ETF (Bats: SPMV), providing exposure to select constituents from the bellwether S&P 500 Index while producing lower volatility characteristics compared to the broader US large-cap equity market.

PowerShares unveils S&P 500 Minimum Variance ETF

The PowerShares S&P 500 Minimum Variance ETF aims to provide large-cap US equities exposure while lowering risk compared to the broad market.

The fund tracks the S&P 500 Minimum Volatility Index which employs a managed-volatility methodology that seeks to achieve lower total risk than the S&P 500 Index, while maintaining similar characteristics.

The methodology employs an optimization driven-weighting scheme such that the overall forecasted volatility of the index is minimized while subject to stock level (minimum of 0.05% and maximum of 2%), sector level (within five percentage points of the S&P 500) and factor constraints.

There are 96 constituents in the index which is primarily exposed to the consumer discretionary (18.2%), information technology (16.1%), healthcare (13.4%), consumer staples (12.8%) and financials (10.2%) sectors. This contrasts to the market cap-weighted S&P 500 which has greater exposure to the relatively more volatile information technology (22.3%) and financials (14.5%) sectors, with the next largest sectors being healthcare (14.5%), consumer discretionary (12.3%) and industrials (10.3%).

The index has fulfilled its purpose when evaluated over a long time horizon, returning 7.6% per annum with a 12.1% annualized standard deviation over the past ten years, compared to a 7.2% per annum return and a 15.2% annualized standard deviation for the S&P 500 Index over the same period. However, the index has gone through periods of underperformance, rising only 5.9% year-to-date (30 June) compared to 9.3% for its benchmark.

Source: S&P Dow Jones Indices.

The fund has a total expense ratio (TER) of 0.13%.

In Europe, the $830 million iShares S&P 500 Minimum Volatility ETF (LON: SPMV) tracks the same index as the new PowerShares launch and comes with a TER of 0.20%.

US investors looking for the lowest cost means of accessing the regular market cap-weighted performance of the S&P 500 Index should look at the $118 billion iShares Core S&P 500 ETF (NYSE Arca: IVV) or the $73bn Vanguard S&P 500 ETF (NYSE Arca: VOO), both of which costs just 0.04%. In Europe, the cheapest fund to track the S&P 500 Index is the $2.8bn Source S&P 500 UCITS ETF (LON: SPXS) which has a TER of 0.05%.

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