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Frequent Contributor

Low-Volatility SPLV, USMV After Rebalancing

After May rebalancing, low-volatility ETFs look quite different. Their top sectors are:

SPLV: Healhcare 25.52%, consumer-staples 22.61, industrials 15.92%   https://www.invesco.com/us/financial-products/etfs/product-detail?productId=SPLV

USMV: IT 19.27%, financials 13.96%, consumer-staples 12.19%   https://www.ishares.com/us/products/239695/ishares-msci-usa-minimum-volatility-etf

YBB
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Re: Low-Volatility SPLV, USMV After Rebalancing

Indeed, very different. Here's a total return % comparison to date, per M*.

 YTD1 Week1 Month3 Month12 Month3 Year5 Year
SPLV-14.912.23-2.05-11.18-6.855.497.80
USMV-6.722.062.37-2.853.639.5710.09
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Re: Low-Volatility SPLV, USMV After Rebalancing

YBB- Thanks for sector breakdown.

Wayoutwest -Thanks for the table.

I had USMV before Feb. I had reduced it in March. Now I have rebought a small amount.


@wayoutwest wrote:

Indeed, very different. Here's a total return % comparison to date, per M*.

 YTD1 Week1 Month3 Month12 Month3 Year5 Year
SPLV-14.912.23-2.05-11.18-6.855.497.80
USMV-6.722.062.37-2.853.639.5710.09

SRT

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Re: Low-Volatility SPLV, USMV After Rebalancing

USMV sector weighting (percentages) as of May 27 and March 31st shown below does not indicate the reconstitution as of May 27 has changed the sector weightings much.  

 27-May 31-Mar

formation Technology

19.12 18.57

Financials

14.02 14.12

Consumer Staples

12.25 12.89

Health Care

11.65 11.74

Consumer Discretionary

8.62 7.75

Utilities

8.23 9.17

Real Estate

7.4 7.65

Industrials

7 6.93

Communication

5.6 5.59

Materials

3.88 3.4

Energy

1.89 1.7

Cash and/or Derivatives

0.35 0.5


 

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Re: Low-Volatility SPLV, USMV After Rebalancing

@Anitya , I saw the news that SPLV had rebalanced in May. I tried to find if USMV also rebalanced, but couldn't find specific info except that it also rebalances in May. So, my guess about USMV rebalancing may not have been correct.

YBB
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Re: Low-Volatility SPLV, USMV After Rebalancing

Good post. I owned SPLV going into the crash--made a decision that it failed its purpose for my portfolio and used it for tax loss harvesting (had heavy utilities which got crushed).  Morningstar docked it a star, too. I knew its extreme sector bets posed risks--but I'm also unconvinced that a quarterly rebalance is sufficiently fast for extreme risks.  It's probably a much better fund for more "run-of-the-mill" volatility.  

To be fair, many such strategies failed in the extreme sell-off and it wasn't my only "safer" fund to present market-like risks.

Instead, I'll be using more predictable options-based hedged equity funds, and volatility weighted funds that include "go-to-cash" options for extreme market conditions (CDC/CFO/JHQAX) for the low-volatility portion of my portfolio.  I know these aren't perfect either, but prefer more predictable protection in return for reduced gains.  I've got other parts of my portfolio for these risks.  Can't comment on USMV, although it appeared to perform better. 

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Re: Low-Volatility SPLV, USMV After Rebalancing

Interesting.  I own USMV and have been very happy with it - it did exactly what I expected during the market meltdown.  We'll see of course in the future, but it's a keeper for me.

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Re: Low-Volatility SPLV, USMV After Rebalancing

Sector rankings and weightings in USMV after re-balance have changed quite a bit.   In the re-balancing, looks like all the sectors that did well during the market meltdown and recovery so far received higher weighting and the not well performing sectors received lower weighting (compared to pre-re-balancing weighting).   Because of this, if there is a sector rotation in the market, USMV is expected to under-perform.  If there is a second wave of virus, on an absolute basis (not relative to other funds), USMV may do well compared to what it did during the first wave.   (From Feb 19 market top, based on stock charts, it lost as much as SPY into the market bottom and then did not recover as much as SPY.)   Given this uncertainty, not sure what purpose USMV serves in a portfolio.  (5% of my PV.)

 

USMVApprox %age change from Rebalance1-Jun27-May31-Mar
formation Technology14.96%21.9819.1218.57
Financials-18.19%11.4714.0214.12
Consumer Staples-3.67%11.812.2512.89
Health Care42.23%16.5711.6511.74
Consumer Discretionary-21.23%6.798.627.75
Utilities2.55%8.448.239.17
Real Estate-28.92%5.267.47.65
Industrials2.29%7.1676.93
Communication14.46%6.415.65.59
Materials-29.90%2.723.883.4
Energy-41.27%1.111.891.7
Cash and/or Derivatives-17.14%0.290.350.5

 

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Re: Low-Volatility SPLV, USMV After Rebalancing

Anitya- "If there is a second wave of virus, on an absolute basis (not relative to other funds), USMV may do well compared to what it did during the first wave.   (From Feb 19 market top, based on stock charts, it lost as much as SPY into the market bottom and then did not recover as much as SPY.)   Given this uncertainty, not sure what purpose USMV serves in a portfolio.  (5% of my PV.)"

Thanks to you and YBB for this analysis. I also had above 5% in USMV in my taxable account. I sold it after 3 or 4 days into the recent  sharp decline in March. Because it was an ETF, I was able to sell it during the daytime. 

SRT

 

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Re: Low-Volatility SPLV, USMV After Rebalancing


@yogibearbull wrote:

@Anitya , I saw the news that SPLV had rebalanced in May. I tried to find if USMV also rebalanced, but couldn't find specific info except that it also rebalances in May. So, my guess about USMV rebalancing may not have been correct.


Checking my investments in the 2 shows that maybe USMV did not need rebalancing as much at SPLV. Today SPLV is 3-4 times as negative as is USMV that is not far from cost recovery for me.

In fact, given that I have not looked at the exact buy transaction dates, even FDLO is MUCH better and LGLV better than SPLV for me.

PS:  I have also been VERY surprised at the volume of trading that takes place in these 2  ETF's. I did not think that this would be a trader's arena.   :-((( 

I have been going big time into low volatility stock ETF's versus other stock ETF's.  I was VERY displeased to see how big the hits were for these "low volatility" investments.   :-(((

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Re: Low-Volatility SPLV, USMV After Rebalancing


@judger wrote:

I have been going big time into low volatility stock ETF's versus other stock ETF's.  I was VERY displeased to see how big the hits were for these "lo volatility" investments.   :-(((


I get it.  I've too come to realize that low-vol is not a capital preservation strategy--it's just a form of factor investing that may/may not over-perform in certain market conditions.

It's entirely possible that SPLV may do great if one sector of the market gets slammed and its algorithm underweighted that sector during the previous/year quarter.  In fast crashes like March, it did not have time to react.  It may also reach its goal over a full market cycle -- but how long do we wait?

By accepting its limitations, and that none of us know the future, I've made some portfolio changes to ensure I don't "overweight" low-val as a capital preservation strategy.  I need my eggs in other baskets, too, like Dividend Growth (VIG), hedged equities, strategies that automatically go to cash in market drops (CDC), etc.  

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Re: Low-Volatility SPLV, USMV After Rebalancing

From 2/19/20 high,

SPLV fell much more than SPY and then failed to rebound much;

USMV did better;

global VMVFX did even better [being active, it doesn't have any rebalancing schedule];

all have perked up in the last 7-10 days.

SPLV and USMV May rebalancing have put them belatedly into more of what did better during lockdown/stay-home, so they are more vulnerable to any downdraft in those leading stocks. In fact, cyclicals have started to move as economies are reopening but rebalancing has reduced their exposures to those,

https://stockcharts.com/h-perf/ui?s=SPLV&compare=USMV,VMVFX,SPY&id=p42859732827

YBB
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Re: Low-Volatility SPLV, USMV After Rebalancing

Probably very OT, BUT I just looked at my non-TIAA brokerage account AND I JUST BROKE EVEN YTD!!!!   :-)))

OK. Honestly the YTD figure seems to have forgotten the 6 digit addition that I made with a TIAA transfer to that brokerage account. But it still feels SO GOOD to see a positive number.   :-)))

I have also been using this 2020 disaster to sharpen up my strategies and simplify by moving losers to better places while reducing the members in the portfolios when possible. I have started to look at portfolios instead of single securities and to define performance tracking for the portfolio while still watching the components in the portfolio for signs of bad things to come.

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Re: Low-Volatility SPLV, USMV After Rebalancing

From April 15 thru today, USMV and VCIT are even at 4% total return.   I would consider that as a forgettable performance for USMV.  I was holding on to USMV thru this time to see how the re-balancing will effect portfolio.

From Feb 19, VDIGX and USMV have done about the same.  But it is possible the active fund, VDIGX, could do better than USMV in the next few months because VDIGX manager may decide to stay with some of the constituents even if they failed criteria for inclusion.  Unfortunately, my USMV is in a taxable account and I own only ETFs in taxable account for tax efficiency.  May be it is time to forget tax and just pick best possible investments.  

 

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Re: Low-Volatility SPLV, USMV After Rebalancing


@Anitya wrote:

<snip>

From Feb 19, VDIGX and USMV have done about the same.  But it is possible the active fund, VDIGX, could do better than USMV in the next few months because VDIGX manager may decide to stay with some of the constituents even if they failed criteria for inclusion. 

<snip>

 


“'I still think the best companies have an obligation to give money back to their shareholders in some form,' says the manager of the $38.9 billion Vanguard Dividend Growth fund (ticker: VDIGX). 'But what’s different now is that the shareholder may not be the primary stakeholder that companies need to think about.'”

"In light of these extraordinary circumstances, Kilbride says he may, for the first time since taking over this fund in 2006, give companies a pass if they need to reduce or suspend their payouts. 'We plan to be a little more open-minded,' says Kilbride, 55."

Link

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Re: Low-Volatility SPLV, USMV After Rebalancing

AUENX beats USMV in every time period I have checked. Only drawback I can see is that it is an OEF so can't trade it during the day. NTF at FIDO. I switched to it a couple years ago from USMV. I keep checking but can't find a reason to go back.

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Re: Low-Volatility SPLV, USMV After Rebalancing


@SandyinBoca wrote:

AUENX beats USMV in every time period I have checked. Only drawback I can see is that it is an OEF so can't trade it during the day. NTF at FIDO. I switched to it a couple years ago from USMV. I keep checking but can't find a reason to go back.


I ran Stock Charts with distributions reinvested with annual periods back to 2/1/2015 to 2/1/2020. Pretty comparable, Sandy. Have you looked at the FDLO and LGLV ETF's?

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Re: Low-Volatility SPLV, USMV After Rebalancing

Thanks for the snipet and link rila3400.  The article is behind a paywall.  Let us see how VDIGX does.  The fund is concentrated and big. 

 

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Re: Low-Volatility SPLV, USMV After Rebalancing


@SandyinBoca wrote:

AUENX beats USMV in every time period I have checked. Only drawback I can see is that it is an OEF so can't trade it during the day. NTF at FIDO. I switched to it a couple years ago from USMV. I keep checking but can't find a reason to go back.


 

AUENX looks like an excellent fund, except for the $1,000,000 initial minimum investment requirement at Fidelity.

Fred

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Re: Low-Volatility SPLV, USMV After Rebalancing


@Anitya wrote:

Thanks for the snipet and link rila3400.  The article is behind a paywall.  Let us see how VDIGX does.  The fund is concentrated and big. 

 


You're welcome. I don't have a Barron's subscription but can view the linked article. I'm not too concerned about the fund's size. Mr. Kilbride has always favored companies with a large market cap (median market cap of $108.4B as of 04/30/20). If AUM exceed the manager's comfort level, I'm fairly certain Vanguard will close VDIGX to new investors. The fund was closed July 2016 - July 2019.

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