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What Does “Low Volatility” Mean?

July 23, 2014 by Thomas Mullooly

https://media.blubrry.com/invest/p/content.blubrry.com/invest/What_Does_Low_Volatility_Mean_July_2014_Podcast.mp3

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Over the past few years, we’ve heard more and more about low volatility funds and ETFs. It’s not just advisors, brokers, and the financial industry talking about them either. We’ve had clients ask us what’s up with these low volatility investments. That’s why Tom and Brendan decided to talk about them on this week’s Mullooly Asset Management podcast.

The most elementary way to explain low volatility investments is that their prices fluctuate less than a typical stock. Put into investment terms, their beta is low. What’s beta? That’s a good question. Beta is how risk or volatility is measured in the investment world. For example, if the S&P 500 has a beta of 1, then a company whose stock moves less than the market would have a beta of something under 1 (maybe 0.7). Low volatility investments have lower betas than the index they track.

You can learn more about beta in this educational post: http://www.nasdaq.com/investing/glossary/b/beta

A notable low volatility ETF that tracks the S&P 500 Low Volatility index is SPLV. The index is created by taking the 100 lowest volatility stocks from the S&P 500. The funds holdings are periodically reviewed and updated to ensure that it’s holdings are of the lowest volatility. Within the ETF you’ll find a large number of electric utility stocks, as well as some industrial and financial names. This is just one example of low volatility’s growing prevalence in the investment universe. We’ve also seen the low volatility concept applied to specific asset classes and sectors.

Make sure to listen to this week’s podcast to learn more about low volatility investments from Tom and Brendan!

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Filed Under: Asset Management, Podcasts Tagged With: ETF's

About Thomas Mullooly

Thomas Mullooly is owner and founder of Mullooly Asset Management, Inc. In 2002 Tom opened Mullooly Asset Management, a fee-only investment advisory firm. As an investment advisor, and not a broker, Tom works strictly for his clients. With the help of point and figure charting, Tom builds a realistic game plan for clients.

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