This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

New S&P 500 ETFs Offer Twists on Volatility

NEW YORK ( TheStreet) -- Two new exchange-traded funds from PowerShares offer interesting twists on that most plain vanilla of ETFs: the S&P 500 index fund.

They are the PowerShares S&P 500 High Beta Portfolio (SPHB) and the PowerShares S&P 500 Low Volatility Portfolio (SPLV).

These new funds seem to appeal to two different types of investors: those who want to make aggressive, speculative bets without the potential disadvantages of levered long funds; and those who have lost confidence in their investing abilities or have realized they have a limited tolerance for volatility.

The High Beta Portfolio owns the 100 most volatile (highest-beta) stocks from the S&P 500, and the Low Volatility Portfolio owns the 100 least volatile stocks from the same index.

In the first fund, higher-volatility stocks get higher weightings, while in the second, lower-volatility stocks get higher weightings.

The funds rescreen their holdings once a year and rebalance them each quarter.

For people who have learned that they have a low tolerance for wide market gyrations, the Low Volatility Portfolio may be appealing.

The back test for this fund is eye-opening. Its holdings would have performed better than the S&P 500 during all three years of the tech bust. In 2000, the portfolio would have risen 25%, while the S&P 500 fell 9%.

In 2008, the S&P 500 declined 37%, while the Low Volatility Portfolio would have fallen just 21%.

The key to understanding these results is understanding what's in the Low Volatility Portfolio.

This fund will tend to have heavier weightings toward health care, utility and consumer staple stocks. Right now, its biggest components include Johnson & Johnson (JNJ), Southern Company (SO) and Clorox (CLX).

These companies and others like them obviously are more likely to see more muted moves than the broader market, making them a "get rich slowly" product. The 10-year annualized return of the back test is 6.94%, vs. 5.13% for the S&P 500.

The Low Volatility Portfolio allocates 29% to utilities and 28% to consumer staples, with all other sectors being much smaller. That sector allocation should make for a high dividend yield. The underlying index currently yields 3.4%, less the 0.25% expense ration. The fund could yield better than 3%, but that remains to be seen until it commences payouts.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
SPLV $37.52 0.00%
SPHB $35.23 0.00%
SSO $131.07 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs