Can SPLV’s Fund Flow Catch up with USMV’s Flow?


Nov. 18 2015, Updated 8:07 a.m. ET

USMV versus SPLV

Minimum volatility funds are among the highest traded smart beta funds in the market. Their index providers select stocks that exhibit low volatility in the market. One such fund is the iShares MSCI USA Minimum Volatility ETF (USMV), which mimics the performance of the MSCI USA Minimum Volatility Index. Similar to USMV, the PowerShares S&P 500 Low Volatility ETF (SPLV) invests in low volatility stocks by tracking the S&P 500 Low Volatility Index. The general aim of building a low volatility portfolio is to reduce the overall risk of it in the market while maintaining the potential for capital appreciation. A fund flow and average volume traded analysis helps to gauge the future volatilities of such funds.

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Strong inflow of funds with increased volume

Fund flow analysis is a major indicator of demand for an ETF in a market. Both USMV and SPLV saw healthy growth in their volumes traded since 2011. Volumes of USMV shares traded per day grew faster than SPLV’s share volumes, though the average volume of USMV’s shares traded per day is still less than SPLV’s average volume. Due to USMV’s strong performance in the market, USMV’s fund inflow increased tremendously, surpassing SPLV’s. SPLV observed an increased fund outflow for the current quarter.

Comparison of top holdings

SPLV’s top holdings include Plum Creek Timber (PCL), Paychex (PAYX), and PepsiCo (PEP). USMV’s holdings include Public Storage (PSA), Paychex (PAYX), and McDonald’s (MCD). The average implied volatility, which shows the expectation of future volatility, of USMV’s top ten holdings is 19.2, compared with SPLV’s top ten holdings’ average implied volatility of 19.9. USMV has successfully outperformed SPLV this year by giving a YTD (year-to-date) return of 2.3%, compared with SPLV’s YTD return of 0.6%. A detailed study of USMV’s holdings is presented in the next part of this series.


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