UBS Forecasts A Rebound For This Low-Volatility ETF

The UBS Global Investment Research firm advises investors to steer away from the investment options that have performed well in the first few months of 2023.

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According to a note to clients from UBS's ETF strategist David Perlman, the Invesco S&P 500 Low Volatility ETF (SPLV) has been added to the bank's list of favorite exchange-traded funds in an effort to cater to the needs of investors. In February, UBS rebalanced the SPLV fund to ensure that it held sizeable positions in some of UBS's favorite sectors, including companies in the S&P 500 that had experienced low realized volatility for the last 12 months.

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Specifically, SPLV is overweight consumer staples, utilities, and industrials, while underweighting consumer discretionary and technology, according to Perlman. There is also a dynamic tilt in sectors of SPLV's index, which allows for large deviations from the benchmark.

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McDonald's, PepsiCo, and Johnson & Johnson are among the fund's top holdings. Invesco reports that utilities and consumer staples make up the majority of the fund's weight.

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• Pepsico

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• Johnson & Johnson

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• Mcdonald’s

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• Coca-Cola

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• Mondelez International

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• Merck

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• Hersey

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• General Mills

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• Procter & Gamble

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• Colgate-Palmolive

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It is noteworthy that UBS suggests ignoring what has worked so far in 2023. The SPLV has declined about 4% on a total return basis this year, while tech stocks have been big winners. As of this writing, the fund holds about $9 billion, down $900 million from the year-earlier level.

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In the contrarian call, it is predicted that markets will return to many of the things that worked in 2022. Even when accounting for SPLV's 0.25% expense ratio and its poor first quarter, its total return has outperformed the S&P 500 by 6% on a total return basis.

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Funds have delivered on their promises according to their labels. A beta of 0.574 indicates that the SPLV has been far less volatile than the broader market over the past year, according to FactSet.

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Energy has become less of a priority for UBS compared to last year, as several funds, including iShares U.S. Oil & Gas Exploration & Production ETF (XOP), has been dropped from its list of preferred ETFs.