By Philip van Doorn, MarketWatch
Low-volatility stocks have outperformed during this brutal stock market decline. Perhaps more interestingly, they’ve done better over longer periods, even before the coronavirus-led market crash.
The S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.24% set a closing high Feb. 19. After that, the index fell 25.2% (with dividends reinvested) through March 17. This has been the most volatile period for U.S. stocks since the 2008 financial crisis, according to analysts at Goldman Sachs.
The Invesco S&P 500 Low Volatility ETF /zigman2/quotes/201108430/composite SPLV +0.36% holds the 100 S&P 500 stocks with the least amount of volatility over the past 12 months. It is rebalanced, reconstituted and equal-weighted quarterly.
Here’s a performance comparison for SPLV against the SPDR S&P 500 ETF /zigman2/quotes/209901640/composite SPY +0.19% from the close Feb. 19 through March 17. All ETF returns in this article are after fees:
Here’s the same comparison for three years through Feb. 19:
And five years through Feb. 19:
You may have expected the lower-volatility ETF to perform better than the full S&P 500 in the near term. But if you go back to May 5, 2011, when SPLV was established, its total return through the record high Feb. 19, 2020, was 208.5%, ahead of the 202.1% return for SPY.
For three years through, SPLV returned 53.1%, ahead of SPY’s 52.4% return, and for five years it returned 79.7%, ahead of SPY’s 77.9% return.
So the low-volatility approach for large-cap U.S. stocks had much less of an advantage during the bull market, but still came out ahead.
Small- and mid-cap low-volatility ETFs
Here’s a comparison of total returns between the Invesco S&P Mid-Cap Low Volatility ETF /zigman2/quotes/202774584/composite XMLV +0.12% and the Vanguard S&P Mid-Cap 400 ETF /zigman2/quotes/202479085/composite IVOO -0.09% (which tracks the S&P Mid-Cap 400 Index /zigman2/quotes/210599897/delayed MID +0.07% ) for various periods: