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ETF Specialist

When Boring Is Beautiful: A Low-Volatility Strategy

This low-volatility fund offers shelter from the winds to come.


For the past three decades, the rich world rode high a tide of debt-fueled prosperity. The financial crisis spurred U.S. households and firms to chip away at their debts. The eurozone crisis is doing the same to European governments. In the past--notably the 1930s' United States and 1990s' Japan--deleveragings of this magnitude took a decade or so to work through. They were punctuated by false dawns, tremendous volatility and sluggish growth. In this macroeconomic context, strategies less dependent on robust growth and steady markets make sense. The best of the lot:  PowerShares S&P 500 Low Volatility (SPLV).

It implements a simple low-volatility strategy for a more-than-reasonable 0.25% expense ratio. Each quarter the fund sorts S&P 500 stocks by their trailing 12-month volatilities, picks the 100 least volatile, and weights them by the inverse of their volatilities. SPLV is laden with the boring, such as utilities and consumer staples firms. The strategy delivered steady returns during last year's volatility.

Samuel Lee does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.