What Does “Low Volatility” Mean?

by | Jul 23, 2014 | Asset Management, Podcasts

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!

Join our Newsletter


Future-Proof Your Finances

Download the 25-Year Success Strategy

Enter your email & get this free PDF download to help you prepare for the next 25 years.  We will send periodic updates as well. Unsubscribe at any time.

You have Successfully Subscribed!

Share This