USMV (iShares MSCI USA Minimum Volatility ETF) traded +19M shares on Friday vs average volume of just 1.7M shares. Was this typical of a large buyer present in the ETF? Absolutely. Outstanding shares of the fund increased by 12M shares or $500M in market value. Take a look at the 2nd chart below for the recent growth of this ETF over the last five years. In particular, the fund has doubled in size in a little over a year to $9.3B in market value.
USMV – 1 year chart
Source: Bloomberg
USMV – 5 year chart of outstanding shares
Source: Bloomberg
So, what are minimum volatility equities and why the interest? The ETF is composed of 12% REITs, 9% Retail, 8.4% Electric (Utilities), 8.4% Pharmaceuticals, 7.7% Healthcare Products, 7.5% Insurance, and 4.7% Telecom companies.
Here are the highest company weights in the ETF:
Source: Bloomberg
Most of these industry groups in USMV can also be classified as defensive in nature. This has been a major theme so far in 2016 as the SPX has returned -6.2% so far. Year to date, Utilities have added $3.2B in assets and Consumer Staples have added $954M. The only other US sector with inflows in 2016 has been Energy with $1.4B. Clearly, investors have taken on a defensive tone and seem to be using USMV to invest in this theme.
This is a theme that may continue to play out in 2016. Here is a way I look to benefit from the Low Volatility / Defensive Equity theme:
TheTribecaTradeGroup trade:
Purchase the USMV ETF outright or buy the Sep 42 / 45 call spread for $0.95
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