USMV’s top holdings
The iShares MSCI USA Minimum Volatility ETF (USMV) seeks to track the investment return of the MSCI USA Minimum Volatility Index. The index provider selects stocks with low volatility for its portfolio. USMV’s top five holdings include McDonald’s (MCD), AT&T (T), Public Storage (PSA), Paychex (PAYX), and AutoZone (AZO). Due to its equal-weighted approach, its top ten holdings only constitute about 15.1% of its total net assets, lower than the smart beta industry average of 23%.
The above chart compares the market performance of $100 invested in USMV and the SPDR S&P 500 ETF (SPY) on January 1, 2015. USMV, being a minimum volatility fund, performed better than the market in 2015. As volatility is a statistical measurement of the magnitude of up and down asset price fluctuations (increases or decreases in a stock’s price) over time, the fund helps to reduce losses during declining markets and experience gains during rising markets. As of November 16, 2015, USMV has successfully outperformed the market with a YTD (year-to-date) return of 2.3%, compared with a market return of 0.1%.
USMV follows an equal-weighted index. Therefore, the performance of each of its stocks is significant for its performance. USMV’s top holding, McDonald’s, has outperformed the market with an annual total return of 14.3%. AT&T, on the other hand, has underperformed with an annual return of -10%. Public Storage and Paychex have performed strongly, with total TTM (trailing-12-month) returns of 21.9% and 10.9%, respectively.
Among its top ten stocks, Procter & Gamble (PG) and Verizon Communications (VZ) performed negatively, with TTM returns of 16.1% and 14.1%, respectively. In the next part of this series, we’ll analyze USMV’s fund flow growth and compare it with SPLV’s.