ALPS Launches Low Volatility ETF (SLOW)

Following the popularity of the Sector Dividend Dogs ETF (SDOG - ETF report), which has recently crossed the $1 billion mark in assets under management, the issuer ALPS has recently launched two funds – ALPS Sector Leaders ETF (SLDR) and ALPS Sector Low Volatility ETF (SLOW) – to expand its product portfolio.

Below we have highlighted some of the details of SLOW fund.

SLOW in Focus

The newly launched ETF seeks to provide low volatility and diversification by tracking the performance of S-Network Sector Leaders Index before fees and expenses. Five lowest volatility securities from each of the 9 GICS sectors are selected to form the fund. The holdings of the fund have S&P 500 (SPY) as their origin (read: Invest in America with These 4 ETFs).

The equally weighting strategy ensures stock and sector diversification while avoiding sector biases. Large caps dominate the fund with 91% allocation while the rest are devoted to mid caps. Presently, the fund holds a basket of 46 stocks with Chubb Corp (CB)  (2.71%), Fiserv Inc.(FISV) (2.27%) and General Mills Inc. (GIS) (2.26%) being the top three holdings

Utilities, Materials, Info Tech/Telecom, Industrials, Healthcare and Financials are some of the sectors comprising the fund, each having 11.11% allocation. SLOW charges 40 basis points as fees (read: ETF Strategies for 2H).

How Does it Fit in a Portfolio?

The fund could be a good choice for investors seeking a diversified exposure to the U.S. large-cap stocks. Currently, the U.S. markets are experiencing volatility in the wake of the Greek crisis and concerns over rate hike at home.

In these volatile times, big and stable companies are usually safer to focus on. Unlike small and mid-cap companies, large caps are less vulnerable to market volatility (read: A New Equity ETF from Direxion to Weather Market Volatility).

This equal weighted fund has almost zero concentration risk as the components are allocated almost equally both on an individual stock and sector basis.

“Rather than investing in pure market-cap indexes, which are usually tilted towards specific sectors, our equal sector weighting methodology may provide a better foundation for building diversified portfolios,” said ALPS Senior Vice President and Director of Exchange Traded Funds in a statement “As a result, investors and advisors may achieve better risk adjusted returns.”

ETF Competition

There are quite a many funds targeting the low volatility space. Among them,PowerShares S&P 500 Low Volatility Portfolio (SPLV - ETF report) is expected to be the biggest competitor for the newly launched ETF. SPLV is the largest and the most popular ETF in the low volatility space with an AUM of $4.7 billion and average trading volume of 1.1 million shares. The fund charges 25 bps in annual fees. It provides exposure to about 100 U.S. stocks with the lowest realized volatility over the past 12 months by tracking the S&P 500 Low Volatility Index.

The next popular ETF is the MSCI USA Minimum Volatility Index Fund (USMV - ETF report). This ETF has amassed over $4.9 billion in assets and charges 15 basis points as fees. The fund tracks the MSCI USA Minimum Volatility (USD) Index to provide exposure to U.S. equities that have low volatility relative to the broader U.S. equity market (see all Large Cap ETFs here).

Though there are quite a few funds in the low volatility space, SLOW can still manage to make a name for itself, given the huge volatility surrounding the equity markets presently. However, the new fund is the costliest option in the space.

Apart from providing low volatility, the fund also offers diversification benefits by using an equally weighting strategy. This makes the fund the costliest among existing low volatility products. Thus, the fund’s popularity is a huge factor of its returns post fees.