Inside Guggenheim’s U.S. Large Cap Optimized Volatility ETF

By | May 18, 2016

Scalper1 News

Low volatility exchange-traded products are in vogue this year due to global growth worries. Be it in China or in several developed economies, fears of a slowdown are widespread. The U.S. earnings picture is also in shambles with a moderation in GDP growth. Oil price, though recoiled from the pit of crisis, is nowhere near full-fledged recovery (read: Low Volatility ETFs Still in Play ). With no definite clues of sustained recovery in the market, edgy investors may want to invest in safe or low volatile products. The current low volatility ETF suite is performing well and probably this is why Guggenheim recently added a new one to the low volatility investing list. The name of the product is the U.S. Large Cap Optimized Volatility ETF (NYSEARCA: OVLC ) . Let’s dig a little deeper. OVLC in Focus The fund looks to track the Guggenheim U.S. Large Cap Optimized Volatility Index, which gives exposure to the advantages of low-volatility investing while “attempting to outperform these strategies during market rallies .” In short, the fund has been launched to act as a defense for most of the time but be more ‘aggressive when the market is rewarding risk characteristics’, per the issuer. This strategy results in the fund holding a basket of 93 stocks with Apple (NASDAQ: AAPL ), AT&T (NYSE: T ) and Procter & Gamble (NYSE: PG ) as the top three holdings with a total allocation of 7.28%. Sector-wise, the fund has double digit weight in Consumer Staples (19.97%), Health Care (18.02%), Financials (13.23%), Utilities (12.76%), Information Technology (12.20%) and Consumer Discretionary (11.69%). The fund charges 30 bps in fees. The underlying index is rebalanced on a quarterly basis. How Does It Fit in the Portfolio? The fund is a good choice for investors looking to play a volatile market. As per the issuer, it uses the S&P 500 index as its selection universe and then applies a proprietary formula to compute the risk-to-reward returns for the trailing 12-month period and figure out each stock’s volatility and correlation to the other stocks in the basket. The strategy is mainly ‘risk- controlled ‘ in nature but reacts to varying market conditions. Unlike low volatility products that normally underperform in bull markets, OVLC may play an aggressive role when risk-on sentiments are prevailing. Needless to say, if the proposed model works out, this ETF can be a great choice for risk-averse investors. ETF Competition Given that the fund seeks to lower portfolio volatility, it might face competition from other low volatility products in the space. The PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) has an asset base of $7.17 billion. The fund charges 25 basis points as fees. The iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) is another fund in the space with an AUM of $12.9 billion and a fee of 15 basis points. But the real competition is likely to come from the SPDR SSgA Risk Aware ETF (NYSEARCA: RORO ) that looks to offer capital gains and competitive returns with respect to the broad U.S. equity market (read: Beyond Miners, 5 ETFs Crushing the Market to Start Q2 ). Link to the original post on Zacks.com Scalper1 News

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