Invesco S&P 500 Low Volatility ETF’s SPLV cut-and-dried approach is commendably transparent, but it invites sector biases that threaten the fund’s low-volatility objective. It receives a Morningstar Medalist Rating of Neutral. 

Aspects of the S&P 500 Low Volatility Index, the benchmark that this fund replicates, are sound. It takes the 100 least-volatile S&P 500 constituents, measured by trailing 12-month standard deviation, and weights them based on volatility. Recent volatility tends to persist in the short term, so this fund’s 12-month lookback period makes sense. Its quarterly rebalancing schedule frequently reshuffles the deck, keeping the fund nimble and responsive to market currents. 

This fund has flaws. It overloads traditionally defensive sectors, like utilities and consumer staples, at the expense of tech, communications, and energy firms. These incidental sector bets can pile up. At the end of April 2023, the fund’s 23% utilities stake more than quadrupled the Russell 1000 Value Index, its category benchmark, while its technology, communications, energy, and financials allocations all fell between 5 and 10 percentage points short. Tilts of this magnitude can compromise the fund’s low-risk aspirations. 

The early-2020 pandemic-fueled market selloff laid these risks bare. With more than half of its portfolio packed into real estate and utilities, this fund was caught flat-footed when tech, healthcare, and communications stocks held up best. The fund fell 1.87 percentage points further than its parent index from Feb. 19, 2020, through March 23, 2020, and trailed far behind in the subsequent recovery. 

Otherwise, the fund has done what it aims to: fare relatively well in drawdowns but lag during rallies. From its May 2011 inception through April 2023, it captured only 64% of the S&P 500’s downside and 69% of its upside. That has translated into attractive lifetime risk-adjusted performance, but 2020 exposed the fund’s latent risks and left a stain on its track record that is hard to ignore.

Analyst Rating

Lopsided sector bets warrant caution.

Analyst

Ryan Jackson

Coca-Cola

McDonald's

PepsiCo

Kimberly-Clark

Colgate-Palmolive

Walmart

Kraft Heinz

Waste Management

Procter & Gamble

Republic Services

This fund offers direct exposure to the S&P 500’s steadiest constituents, but its lack of constraints exposes it to avoidable risks. It warrants an Average Process Pillar rating.

Each quarter, the S&P 500 Low Volatility Index ranks each constituent of the S&P 500 by return volatility over the trailing 12 months and adds the least-volatile 100 to the portfolio. It weights stocks based on the inverse of this volatility measure, so the least-volatile stocks earn the heaviest weight in the portfolio. The index rebalances each February, May, August, and November. 

Quarterly rebalancing helps the fund adapt to market conditions and unload segments of the market that face increasing risk. Consistent turnover requires transaction costs that take a bite out of total returns, though. The fund’s 68% average annual turnover over the past five years comfortably exceeded the category median’s 41% over the same span. 

Unlike some other low-volatility offerings, this index does not use any constraints or consider how its constituents’ performance relates to others. This makes for a transparent approach but exposes the fund to sources of risk that more well-rounded peers effectively mitigate. Sector tilts are the most pertinent concern, but the fund’s value-growth stance can wobble as well.

Average

Process

The team boasts a wealth of experience and strong supporting infrastructure, including analysts, traders, and technology platforms. It earns an Above Average People rating.

Hubbard heads up the index portfolio management team. He has been with Invesco since 2005 and a portfolio manager since 2007. Jeanette leads the equity index team under Hubbard and has been a portfolio manager at Invesco since 2008. Seisser and Doshi joined the team in 2013 and 2018, respectively. These leaders oversee a broader team of experienced portfolio managers who assist with the portfolio’s day-to-day operations.

The team draws on a solid pool of resources from Invesco. Much of the workflow is automated, courtesy of the firm’s proprietary portfolio-management dashboard. A team of analysts assists with corporate actions and advise on necessary steps to anticipate upcoming index changes. Trade execution is handed to Invesco’s global trading desk, allowing the managers to focus on mitigating tracking error and tax efficiency. The team is subject to independent risk oversight.

Above Average

People

Invesco, with USD 1.3 trillion in AUM, tries to cover a great many bases. The firm succeeds in a number of areas but also has its share of subpar offerings, along with many others somewhere in the middle. The firm retains a Morningstar Parent rating of Average.
Invesco is now 3.5 years past the closing of its merger with OppenheimerFunds. While there were some glitches, overall the process avoided the pitfalls that can accompany such corporate actions. On the positive side, Invesco’s international-equity teams—its EQV team in Texas and the New York-based group inherited from Oppenheimer—remain strong points. The firm’s ETF lineup includes the popular Nasdaq-focused QQQ; passive strategies make up around 30% of Invesco’s AUM. 
However, the extensive U.S.-equity lineup remains a weak link despite manager shuffles aimed at bolstering poor performers. The retirement of Meggan Walsh, who managed the relatively few appealing offerings in that group, didn’t help. Fixed-income offerings run the gamut: The multisector and short-term-bond areas are good, but corporate high-yield is less impressive.
Invesco has a substantial presence outside the U.S., but fund performance has been subpar in Asia, with manager turnover an ongoing concern. In the U.K. and Europe, the picture has brightened, but that region still can’t be considered a strength.

Parent

Invesco S&P 500 Low Volatility ETF

SPLV tracks a volatility-weighted index of the 100 least-volatile stocks in the S&P 500.

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