Low volatility is one of the most popular investment factors, a fact reflected in the world of exchange-traded funds. Another ETF offering investors exposure to stocks exhibiting favorable volatility traits debuted Thursday.
The VictoryShares US Multi-Factor Minimum Volatility ETF (NASDAQ:VSMV) tracks the Nasdaq Victory US Multi-Factor Minimum Volatility Index and is the newest addition to the VictoryShares lineup.
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The new ETF employs a two-step approach that aims to deliver superior risk-adjusted equity returns, while seeking to minimize the overall portfolio volatility, according to VictoryShares. VSMV uses a screening model based on fundamental factorssuch as earnings quality, momentum, profitability, and valuationto help identify stocks most likely to outperform.
VSMV's largest sector allocation is 19.6 percent to consumer staples followed by financial services at 18 percent. Technology and industrial names combine for 30.6 percent of the rookie ETF's weight. The consumer discretionary and healthcare sectors combine for over 21 percent.
We believe our two-step approach improves upon the process used by other minimum volatility ETF offerings available today, Mannik Dhillon, president, VictoryShares and Solutions, said in a statement. We use a multi-factor approach to select a starting universe that has the potential to enhance returns and then optimize the portfolio with the aim of reducing volatility. Many minimum volatility strategies focus only on the latter step.
VSMV is a distinctly large-cap ETF as highlighted by an average market value of $139 billion for the new ETF's 62 holdings. The average price-to-earnings ratio for those components is 21, according to issuer data.
A Different Approach
Looking at its exposure to higher beta, cyclical sectors, such as consumer discretionary and technology, it is clear VSMV is different than traditional low volatility strategies.
Current popular low-vol ETF strategies only select and weight companies that exhibit the least volatility from a broader benchmark like the S&P 500. However, VSMV takes the initial first step of screening for smart beta factors like momentum, quality, value and growth before implementing a volatility weight, according to ETF Trends.
VSMV's top 10 holdings include Apple Inc. (NASDAQ:AAPL) and Johnson & Johnson (NYSE:JNJ).
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