Since the last rebalance for the S&P 500^® Low Volatility Index on Feb. 17, 2023, the S&P 500 finished up 3.2% despite briefly dropping in mid-March during the collapse of Silicon Valley Bank. Exhibit 1 shows that during this period, the S&P 500 Low Volatility Index underperformed the S&P 500 by 4.3%. This divergence is mainly due to the significant performance contributions from the mega-cap tech stocks as a result of their strong performance and large weights in the S&P 500.

Exhibit 2 shows that the overall trailing one-year volatility decreased slightly since the end of January. Measured in absolute terms, volatility decreased the most for the Information Technology and Consumer Discretionary sectors, falling 2.4% and 2.2%, respectively. Out of the 11 GICS^® sectors, 9 had their trailing one-year volatility reduced during the period, with the exceptions being the Real Estate and Utilities sectors, which increased just 0.3% and 0.4%, respectively. As of April 28, 2023, Energy, Consumer Discretionary, Communication Services, Information Technology and Real Estate were the top five most volatile sectors in the S&P 500.

As a result of the overall decrease in volatility, the low volatility index’s latest rebalance brought some changes to the sector weights.

The latest rebalance for the S&P 500 Low Volatility Index shifted an additional 4% weight to the Consumer Staples sector. Similarly, Communication Services and Real Estate each gained ground and added 1% weight to their sectors. Despite minor changes in volatility at the sector level for Utilities and Financials, these two sectors lost the most weight in the index at 3% and 1%, respectively.

Communication Services, Information Technology and Real Estate were the most underweighted sectors in the latest rebalance of the low volatility index (effective after the market close on May 19, 2023).

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