The S&P 500 Low Volatility Index, consisting of the 100 least volatile stocks in the index, was rebalanced last week. The outcome? No less than two thirds of the index has changed. Healthcare is now the largest single sector in the index.
While the annual rebalancing of the S&P 500 index yielded virtually no changes in its composition, that’s very different for the S&P 500 Low Volatility Index - which is rebalanced on a quarterly basis.
Following the market crash in March, with extremely high volatility, the quarterly rebalancing of the Invesco S&P 500 Low Volatility ETF (SPLV) led to a 63% change in its composition - which is extremely high.
According to US product specialists, this result is due to the fact that the index Invesco’s ETF is tracking has a very high tilt towards some sectors with defensive characteristics, such as an above-average dividend yield. In February, SPLV still had a 27% weighting to utilities and 18% to real estate, while it allocated a mere 6% to information technology and 5% to healthcare stocks.
But after last week’s rebalancing, utilities have a weighting of only 6%, real estate of 2 % and information technology and health care of 9% and 26% respectively. The weighting of the banking sector has also been greatly reduced. Remarkably, the weighting for consumer staples has also leaped from 10% doubled to 23%.
The VIX index, which measures volatility in the S&P, stood at 14.83 points on 18 February. It then rose to an interim record of 82.69 points on 16 March. Last Friday it recorded a score of 28.18 points.