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

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Republic Services

Colgate-Palmolive

Kimberly-Clark

McDonald's

Waste Management

PepsiCo

Walmart

Procter & Gamble

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 succeeds in a number of areas but also has its share of subpar offerings, along with many others that land somewhere in the middle. A mid-2023 change of CEO, from longtime chief Marty Flanagan to veteran Invesco executive Andrew Schlossberg, is noteworthy, and several other executives retired or departed in 2023. Portfolio-manager shuffles aimed at bolstering poor performers, which began under Flanagan, have continued under Schlossberg, who told Morningstar his most important aim is bolstering “investment quality.” However, major changes of direction or approach are unlikely. The firm retains a Morningstar Parent rating of Average. 
Invesco’s international-equity teams in Texas and New York remain solid. However, the extensive U.S.-equity lineup needs improvement. Fixed-income offerings run the gamut: The multisector and short-term-bond areas are good, but corporate high-yield is less impressive. The firm’s exchange-traded fund lineup includes the popular Nasdaq-focused QQQ; passive strategies make up around 37% of Invesco’s assets under management. Invesco has not been averse to trying new types of strategies, and it was among the firms that immediately launched a spot bitcoin ETF after SEC approval in early 2024.
The picture outside the United States is mixed. Fund performance has been subpar in Asia, and while the picture has brightened in the United Kingdom and Europe, 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.

The Invesco S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) is in the midst of an impressive showing this year, trailing the S&P 500 by less than 200 basis points. That’s noteworthy because the strength of low volatility funds is usually borne out in down markets because these products aren’t designed to have 100% upside capture [.

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