Even with the major domestic equity benchmarks soaring this year, low volatility fare, including exchange-traded funds, aren't trailing by much.

For example, the popular Invesco S&P 500 Low Volatility ETF SPLV is up about 23.10% year to date while the S&P 500 is higher by 24.76%. That's not an alarming gap when considering that primary objective of low volatility ETFs is to perform less poorly when stocks falter, not capture all of the available upside in a bull market.

Investors don't seem to mind the gap. Last week, SPLV took in $702.46 million in new investments, bringing its year-to-date inflows total to $3.17 billion.

Why It's Important

As has been previously noted regarding low volatility ETFs, such as SPLV, these funds are sector agnostic, meaning the sectors that many investors perceive as low volatility don't always dominate the lineups in these funds. SPLV's second-largest sector weight is financial services at 22.38%, but that's poised to change to the downside following the fund's recent rebalance.

“In its current rebalance, effective after market close November 15, 2019, more than half of the eight names that left the index came from the Financials sector, scaling back the weight in the sector by 5%,” S&P Dow Jones Indices said in a recent note.

SPLV's reduced exposure to financial stocks doesn't mean increased exposure to utilities and consumer staples name. Rather, the financial services weight being shed by the fund will be re-allocated among communication services and real estate fare.

What's Next

SPLV's underlying index features the S&P 500 stocks with the lowest trailing 12-month volatility, but that doesn't mean financial stocks have suddenly become significantly more turbulent than they were a year ago.

“Looking at the trailing one-year volatility for S&P 500 sectors compared to three months ago, there is nothing to indicate that Financials as a group became a lot more volatile,” S&P Dow Jones said. “The S&P 500 Low Volatility Index targets low volatility at the stock level and for the latest rebalance at least, there seems to be more going on idiosyncratically than at the sector level.”

About 42% of SPLV's holdings are classified as value stocks, so the reduced exposure to financial services names could trim the fund's value profile as well.