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Watch Factor and Core Equity Strategist Chris Dahlin share why a low volatility factor strategy might be attractive to investors wanting to gain exposure to an equity investment solution that can help navigate market challenges. For more factor insights, explore this month’s Factor Dashboard.
Transcript: Navigate uncertainty with low-volatility factor
After back-to-back years of 25%-plus returns in the S&P 500 Index, the market entered 2025 in a Goldilocks-like environment. Narrow market leadership the last couple years created near record concentration at the top of the S&P 500 Index, valuation expansion resulted in the S&P 500 Index’s price-to-earnings ratio trading at a 23% premium to its average over the last 10 years, and investor sentiment was riding high.
Unfortunately, the bears haven’t been kept at bay thus far in 2025 as market participants grapple with several emerging risks. Policy uncertainty in the form of brewing trade wars, and more aggressive federal spending cuts from the Department of Government Efficiency, has led to deteriorating consumer sentiment and small business confidence. In addition, the release of a new AI model from Chinese start-up DeepSeek, and several others since, has dented the domestic AI invisibility narrative and forecasted capital expenditures cycle.
In an environment of high concentration, heightened volatility, and growing downside risk, one strategy that may help investors navigate these challenges is the low volatility factor. The low volatility factor, or anomaly, refers to the observation that low-volatility securities (those with less price fluctuation) have the potential to generate higher risk-adjusted returns than high-volatility securities. By focusing on low-volatility investments, particularly during periods of heightened risk, investors can potentially create more resilient portfolios that are better equipped to handle market fluctuations and reduce the risk of significant drawdowns. In addition, low volatility strategies have little to no exposure to the so-called Magnificent 7 stocks because of their higher price volatility.
Our suite of low volatility-based ETFs target the least volatile quintile of stocks from their respective parent universes. Constituents are weighted relative to the inverse of their corresponding volatility, so that the least volatile stocks receive the highest weights. Given the factor’s pervasiveness, we offer low volatility-based ETFs across US capitalization ranges and geographies. SPLV is based on the S&P 500 Index, XMLV on the S&P Midcap 400 Index, XSLV on the S&P SmallCap 600 Index, IDLV on an S&P Developed Ex-U.S. Index, and EELV on an S&P Emerging Market Index.
Get more information on our low volatility-based ETFs below this video.
Important Information
All data from Bloomberg as of 2/28/2025 unless otherwise stated
Not a Deposit Not FDIC Insured Not Guaranteed by the Bank May Lose Value Not Insured by any Federal Government Agency
The "Magnificent 7" refers to a group of seven highly influential and dominant technology companies in the stock market. These companies are often recognized for their significant market capitalization, innovation, and impact on the broader economy. The group typically includes Apple, Microsoft, Alphabet (Google), Amazon, Meta Platforms (Facebook), Tesla, and Nvidia.
A Goldilocks-like environment refers to an economic condition that is characterized by moderate growth, low inflation, and low interest rates. This scenario is considered "just right" for investors, as it supports steady economic expansion without the risks of overheating (which can lead to high inflation) or stagnation (which can lead to recession).
The S&P 500 Index is a market-capitalization-weighted index that measures the performance of 500 of the largest publicly traded companies in the United States. It is widely regarded as a benchmark for the overall U.S. stock market.
The S&P MidCap 400 Index is a market-capitalization-weighted index that measures the performance of 400 mid-sized companies in the United States. It is designed to represent the mid-cap segment of the U.S. equity market.
The S&P SmallCap 600 Index is a market-capitalization-weighted index that measures the performance of 600 small-sized companies in the United States. It aims to provide a comprehensive benchmark for the small-cap segment of the U.S. equity market.
The S&P Developed Ex-U.S. Index is a market-capitalization-weighted index that measures the performance of developed market equities outside of the United States. It includes companies from various developed countries, providing a broad measure of international equity markets.
The S&P Emerging Market Index is a market-capitalization-weighted index that measures the performance of equities in emerging markets. It includes companies from various emerging economies, offering a comprehensive benchmark for the emerging market segment of the global equity market.
Past performance is not a guarantee of future results. An investment cannot be made into an index.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The opinions expressed are those of Invesco, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
Investments focused in a particular industry or sector are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
The Fund may become “non-diversified,” as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the Index. Shareholder approval will not be sought when the Fund crosses from diversified to non-diversified status under such circumstances.
There is no assurance that the Fund will provide low volatility.
XSLV
Stocks of small-capitalization companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale than large companies.
XMLV
Stocks of medium-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
IDLV
The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
Stocks of medium-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
The performance of an investment concentrated in issuers of a certain region or country, such as the Asia Pacific, is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
EELV
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile and may be illiquid or restricted as to resale.
The performance of an investment concentrated in issuers of a certain region or country, such as Taiwan and the Asia Pacific, is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
Shares are not individually redeemable, and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 20,000, 25,000, 50,000, 75,000, 80,000, 100,000, or 150,000 Shares.
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