Fund Watch


4 Low-Volatility Stock Funds

Anne Kates Smith

These exchange-traded funds and one mutual fund will soothe your nerves while sticking with stocks.



New exchange-traded funds may be just the ticket for jittery investors. These ETFs invest in stocks that shimmy the least. The one we like best is PowerShares S&P 500 Low Volatility Portfolio (symbol SPLV). Standard & Poor’s takes the 100 least-volatile stocks in the S&P 500 index over the previous 12 months, weights them by volatility (the less volatile a stock, the bigger its position in the specialized index) and rebalances the holdings quarterly. Note that S&P bases volatility on standard deviation, not beta.

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The ETF charges just 0.25% a year and uses the simplest methodology. Since its May 2011 launch, it has garnered $1.7 billion in assets and is by far the most liquid and easily traded of the new class of ETFs. True to its low-volatility nature, its returns lagged early in 2012. Through April 5, the ETF gained 3.9%, compared with 11.8% for the S&P 500. Top holdings include utility Southern Company, Procter & Gamble and Coca-Cola.

Competing funds include the Russell 1000 Low Volatility ETF (LVOL) and iShares MSCI USA Minimum Volatility Index Fund (USMV). There are low-volatility ETF options for both developed and emerging markets as well.

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Some actively run mutual funds tend to gravitate toward low-volatility stocks. Our favorite is Vanguard Dividend Growth (VDIGX), a member of the Kiplinger 25. It also lagged the market early in 2012, with a year-to-date gain of 6.9%. But its long-term record is superb.

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