Low-volatility exchange traded funds are all the rage this year. But with that in mind, it's arguably surprising the Compass EMP U.S. 500 Volatility Weighted Index ETF (NASDAQ:CFA) is not garnering more attention.
Compass, which is just over two years old, follows the CEMP U.S. Large Cap 500 Volatility Weighted Index. That benchmark is a passive broad market index consisting of the common stock of the 500 largest U.S.-based companies with four quarters of positive earnings weighted based on their daily standard deviation, according to Victory Capital, CFA's sponsor.
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A basic premise of low-volatility ETFs is that they should fair better than their traditional rivals when markets sag the rub being a fund such as Compass will leave some returns on the table when equities soar. Living in the current market environment, CFA and rival low-volatility ETFs are showing what they are made of.
Actually, Compass is not leaving much on the table. Since its inception, it's higher by 11.3 percent. And year-to-date, CFA is higher by more than 8 percent and has recently been making a series of all-time highs.
CFA may be suitable for investors seeking to achieve higher risk adjusted returns over the long-term compared to traditional market capitalization weighted indexes, according to the issuer.
CFA makes good on its low volatility effort with a standard deviation of just under 11.7 percent. And Compass is something of a departure from some standard low volatility ETFs in that it is not heavy on the utilities sector, comprising just 7.4 percent of its weight.
Rather, Compass has a cyclical tilt with industrial, consumer discretionary and technology issues combining for nearly half of its weight. Financial services and healthcare stocks combine for another 25.7 percent of its lineup. The fund's sector weights are capped at 25 percent.
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