Kiplinger\'s Personal Finance - 04.2020

INVESTING

40 KIPLINGER’S PERSONAL FINANCE^ 04/2020

INVESTING

A Calmer

Way to Invest

This ETF uses two tactics

to smooth returns.

LOW- AND MINIMUM-VOLATILITY FUNDS

become popular whenever nerves start

to fray, such as during the near bear

market of 2018. Given a potentially

combustible U.S. election cycle, 2020

seemed a likely candidate for a low-vol

resurgence, and the coronavirus out-

break cinched it, driving anxious in-

vestors headlong into these funds.

LEGG MASON LOW VOLATILITY HIGH DIVI-

DEND ETF is one of a few low-vol funds

that target holdings that not only are

more stable than the market overall

but also dole out above-average in-

come. The fund starts with a screen

of 3,000 U.S. stocks, homing in on

profitable firms with sustainable divi-

dend yields. Stocks are then scored

based on price and earnings volatility.

No stock can exceed 2.5% of assets

at the time of the ETF’s quarterly re-

balancing; no sector can exceed 25%

of assets.

The ETF’s 80 current holdings are

heavy in utilities, real estate stocks

and consumer staples, which together

account for 56% of assets. Top hold-

ings with generous dividends, such as

Duke Energy, give the ETF a yield of

3.3%, far above the 1.9% yield of Stan-

dard & Poor’s 500-stock index and that

of most traditional U.S. low-vol funds.

The ETF has lagged the market since

its 2015 inception—not surprising, given

its preference for calmer holdings,

especially during a roaring bull mar-

ket. But the ETF isn’t designed to out-

perform the market over long bull

stretches—it’s much better suited for

downturns, such as in the fourth quar-

ter of 2018, when it beat the index by

8.1 per centage points. KYLE WOODLEY

Kyle _Wo o d ley@ki p li n ge r.co m

U.S. Low-Volatility ETFs Ranked by yield

Rank/Fund Symbol 1 yr. 5 yrs.

Assets

(m i ll i o n s)

Exp.

ratio

Div.

yield

Annualized total return*

1.Invesco S&P Sm. Cap High Div. Low Vol. ETF XSHD $22 1.76% 2.20% N/A 5.1% 0.34%

2.Invesco S&P 500® High Div Low Vol ETF SPHD 4,258 6.29 6.05 9.30% 4.3 0.30

3.SPDR SSGA US Sm. Cap Low Vol. Index ETF SMLV 322 –4.24 5.08 0.58 3.4 0.29

4.Legg Mason Low Vol. High Dividend ETF LV H D 916 13.98 9.00 N/A 3.3 0.27

5.Invesco S&P SmallCap Low Vol. ETF XSLV 2,391 9.90 7.76 10.95 2.5 0.25

S&P 500-Stock Index 21.68% 14.50% 12.40%

As of Jan. 31, 2020. *Assumes reinvestment of dividends and capital gains; three- and five-year returns are annualized. N/A Not

available; fund not in existence for the entire period. Expense ratio is the percentage of assets claimed annually for operating a

fund. SOURCES: Legg Mason Global Asset Management, Morningstar, Ycharts, Yahoo Finance.

$35

30

25

(^2020162017201820192020)
SECTOR BREAKDOWN: Safety First
KEY FACTS
SYMBOL: LV H D
RECENT PRICE: $34
ASSETS: $916 million
START DATE: Dec. 28, 2015
STOCK HOLDINGS: 80
AVG. PRICE-EARNINGS RATIO: 16.9
AVG. MARKET VALUE: $33.6 billion
PERFORMANCE SINCE INCEPTION
THE ETF’s YIELD
Bolstered by utilities and
real estate companies,
LVHD yields almost twice
the market average.

3. 3

%

Legg Mason Low Volatility High Dividend ETF

TOP FIVE HOLDINGS

Account for 14% of Assets

AMERICAN

ELECTRIC POWER (AEP)

CROWN CASTLE

INTERNATIONAL (CCI)

PEPSICO (PEP)

DUKE ENERGY (DUK)

EATON (ETN)

3.0%

2.8%

2.7%

2.7%

2.6%

Monthly closing prices

ETF SPOTLIGHT

3 yrs.

26 %

UTILITIES

16 %

R E A L E S TAT E

15 %

OTHER

7 %

FINANCIALS

7 %

COMMUNICATION

SERVICES

7 %

INDUSTRIALS

8 %

ENERGY

14 %

CONSUMER

STAPLES