Excitement can be fun in many aspects of life, but when it comes to the stock market it is often better to opt for a more tame strategy. If you chose to be the tortoise this past year you would have been the winner, as far as performance. A handful of ETFs concentrate on stocks that are considered low volatility and offer steady, above-average dividends. (For related reading, see Exchange-Traded Funds: Introduction.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

The U.S.
PowerShares S&P 500 Low Volatility ETF
(ARCA:SPLV) is composed of the 100 stocks from the S&P 500 Index that have the lowest realized volatility over the prior 12 months. The ETF is currently heavily weighted in utilities (approx 32%), consumer staples (approx 30%) and health care (approx 12%). Over three-fourths of the stocks in the ETF fall into the value asset class and two-thirds are large caps.

Several of the stocks in the top 10 are at or near all-time highs, as money continues to make its way into sectors that investors perceive as "less risky." From utility Southern Company (NYSE:SO) to Kraft Foods (NYSE:KFT), the allocation of low volatility stocks has been the big winner this year.

SPLV began trading in early May and this week broke through to the best level in the short history of the ETF. The ETF is up around 4.6% since May 5, 2011, as the SPDR S&P 500 ETF (ARCA:SPY) has lost around 8% over the same period. This approximate 12% outperformance is a major difference in such a short period of time. (To learn more, read The Benefits Of ETF Investing.)

The expense ratio is a low 0.25% and the SEC 30-day yield is around 3.1%. The P/E ratio on the ETF is about 14, surprisingly above the S&P 500; the price-to-book is 1.96. Regardless of the valuation, SPLV should continue to make investors happy and less stressed in this high volatility environment.

The iShares High Dividend Equity Fund (ARCA:HDV) began trading on the last day of March and has a comparable chart pattern to SPLV. The ETF has a bit of a different strategy, but the allocation is similar in makeup. The process starts with nearly every publicly traded U.S. stock before they are broken down into quality income paying stocks. From there, the top 75 yielding stocks are chosen to make up the ETF.

The top three sectors are health care (approx 28%), consumer goods (approx 24%) and telecommunications (approx 17%). The top three stocks are AT&T (NYSE:T), Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ). The 75 stocks in the ETF have a P/E ratio of around 15.5 and a price-to-book of about 4.1. The expense ratio is 0.4% and the 30-day SEC yield is approximately 3.76%. Since May 5, 2011, HDV is up around 5%, besting both SPLV and SPY. (For more information, read The P/E Ratio: A Good Market-Timing Indicator.)

Emerging Markets
Low volatility and emerging markets may sound like an odd couple, but it is possible and the EGShares Low Volatility Emerging Market Dividend ETF (ARCA:HILO) brings it to reality. The ETF tracks a dividend yield weighted stock market index that is designed to provide higher yields and lower volatility than the MSCI Emerging Market Index.

The ETF charges a net expense ratio of 0.85% and the current index dividend yield is about 6.7%. There are a total of 29 stocks with the largest concentration in South Africa (approx 16%), China (approx 15%), Thailand (approx 14%) and Brazil (approx 12%). Due to the high yields in the sector, telecom stocks make up around 27% of the allocation with electricity at about 13%.

Since its inception on Aug. 4, 2011, the ETF is down about 5.4%, versus a drop of around 15% for the iShares MSCI Emerging Markets ETF (NYSE:EEM) over the same time period.

The Bottom Line
I rarely will suggest an investor put all his/her eggs in one basket and this is one case where that will not change. Over allocating to the low volatility and high dividend ETFs is an acceptable strategy, but keep in mind that if the market rallies, the above-mentioned ETFs will likely lag. That being said a sustained sell-off should see them outperform the overall market. (For related reading, see Exchange-Traded Funds: Equity ETFs.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  6. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  7. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  10. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  5. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  6. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!