Performance of USMV’s Top Holdings



Buy, sell, and hold recommendations

The iShares MSCI USA Minimum Volatility ETF (USMV) seeks to mimic the investment result of MSCI USA Minimum Volatility Index. It’s a smart beta ETF selecting stocks on the basis of the volatility they exhibit. AT&T (T), McDonald’s (MCD), Verizon Communications (VZ), Public Storage REIT (PSA), and AutoZone (AZO) are its top five holdings, representing 7.55% of its total portfolio of $5.75 billion.

As evident from the graph, USMV’s top holdings have more buy and hold than sell recommendations from various Wall Street analysts. This means many analysts are positive about the performance of these stocks.

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Top two holdings analytics

AT&T has projected sales growth of 25% this year. It is trading below its 20-, 50-, and 100-day moving averages. AT&T showed growth of 1.4% in it 2Q15 result, and its diluted earnings per share, or EPS, have dropped to $0.56 from $0.68 in the previous year.

MCD is trading above its 20-day moving average but below its 50-day and 100-day moving averages. Its sales have fallen by 2% since last year. MCD has beaten the analyst estimate of $1.23 a share with earnings of $1.26 in its 2Q15 results.

Valuation multiples

The estimated price-to-earning, or PE, multiples of T, MCD, and VZ are 12.44, 20.71, and 11.60, respectively. The average PE of the fund is 21.47. The price-to-book value ratios, or PBV, of T, MCD, and VZ are 1.95, 8.65, and 16.26, respectively. The average PBV of the whole USMV portfolio is 3.06.

In the next part of the series, we will study a different smart beta ETF that applies the same methodology as that of USMV.


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