When it comes to volatility ETFs, meaning those funds that specifically track high or low volatility equities, so called "low vol" funds have been the dominant members of this space. Investors have clearly embraced the PowerShares S&P 500 Low Volatility Portfolio (NYSE:SPLV). Nearly $4 billion in assets under management indicates as much.
Other low volatility ETFs have flourished as well. Earlier this year, iShares said its four-ETF suite of low volatility funds crossed $4 billion in combined AUM. iShares, the world's largest ETF sponsor, also noted that through February 19, low volatility ETFs attracted $900 million in assets since the start of the year.
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Statistics like that might be enough to make investors what is going on with high volatility ETFs or if such products even exist. Indeed, there are a few "high vol" ETFs on the market today and with cyclical sectors such as energy and financial services continue moving to the upside, high volatility ETFs will reward investors. Now could be the time to consider high vol fare.
"Historically, the Consumer Discretionary, Materials, Energy, Financials and Industrials sectors outperformed the S&P 500 in March over this period and four of the five (not Financials) continued this success in April. In the initial days of March, through March 8, this has held true to form with the Consumer Discretionary, Financials and Materials sectors leading the more defensive Consumer Staples and Utilities sectors," S&P Capital IQ said in a new research note.
As a way of playing a continued high volatility resurgence, S&P Capital IQ recommends the PowerShares S&P 500 High Beta Portfolio (NYSE:SPHB), which the firm rates Overweight. SPHB debuted on the same day in May 2011 as SPLV did and to say the former has been overshadowed by the latter is accurate. However, SPHB cannot be characterized has small or illiquid.
The ETF has nearly $265 million in AUM and through 250 trading days last year, SPHB never traded at premium or discount to its net asset value of even 50 basis points, according to PowerShares data.
As investors would expect a low volatility ETF to be heavy on low-beta sectors such as consumer staples and utilities, SPHB is heavy on higher beta fare. Financials account for 25.6 percent of the ETF's weight while technology names chime in at 20.6 percent. The energy and materials sectors combine for over 28 percent.
"Despite SPHB's short history, we think the ETF offers a diversified way to gain exposure to some of the cyclical sectors. The ETF shows a number of favorable characteristics across our proprietary performance, risk and cost factor analysis," said S&P Capital IQ.
The research firm notes that it ranks five of SPHB's top-10 holdings Buy. Those names are Genworth Financial (NYSE:GNW), Morgan Stanley (NYSE:MS), Helmerich & Payne (NYSEL: HP), Masco (NYSE:MAS) and Nabors Industries (NYSE:NBR).
S&P Capital IQ said it views Mogan Stanley and Nabors as undervalued. The firm also said two other SPHB top-10 holdings Allegheny Technologies (NYSE:ATI) and E-Trade (NASDAQ:ETFC) are undervalued as well.
Given its tilt away from dividend sectors such as staples and telecommunications, SPHB has a 30-day SEC yield of just 0.77 percent. However, the fund's expense ratio is favorable at just 0.25 percent per year. SPHB has outperformed the SPDR S&P 500 (NYSE:SPY) by about 80 basis points year-to-date.
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