On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the State Street SPDR US Large Cap Low Volatility Index ETF (LGLV) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF.
Chuck Jaffe: One fund on point for today. The expert to talk about it. This is the ETF of the Week!
Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange-traded funds with Todd Rosenbluth, the head of research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools you need to make yourself a savvier, smarter investor in exchange-traded funds.
Todd Rosenbluth, it’s great to chat with you again!
Todd Rosenbluth: It’s great to be back, Chuck.
Chuck Jaffe: Your ETF of the Week is…
Todd Rosenbluth: The State Street SPDR U.S. Large Cap Low Volatility Index ETF, LGLV.
Chuck Jaffe: A mouthful! LGLV, the State Street SPDR U.S. Large Cap Low Volatility Index fund. Well, there’s a lot to unpack in the name itself. So, why this fund now?
Todd Rosenbluth: So, Chuck, let’s be honest with the audience. You and I are recording this on Tuesday. The market has sold off more today, on Tuesday, than it did on Monday. And that was following the strikes in Iran and then Iran’s response. So, there’s a lot of turmoil and fighting and bombs that are going off in the Middle East, and that’s made people very nervous.
And so history has shown that the market, when it sells off, it will sell off longer than perhaps you might expect, and then it’ll bounce back faster than you might have expected. And so history has taught me that you shouldn’t be running from the market. You should be having exposure to the equity markets. But if this has made investors nervous, then a lower volatility approach makes a lot of sense.
This is a relatively simple — in fact, I think this is the simplest of those low volatility ETFs that are out there from a proven firm like State Street. It’s low cost. This can make a lot of sense for people who want equity exposure, but not as much of that volatility.
Chuck Jaffe: We’ve been talking a lot on ETF of the Week about actively managed ETFs. This, of course, is an index fund. But how active is it? Because it used to be, before we had active ETFs, that we would talk about just how involved and how flexible an index was and how much stuff was happening. But this, because it’s low volatility, it’s got some measures. How active is this index?
Todd Rosenbluth: Yeah, so, this is an index ETF that rebalances a few times during the year. Again, I’ve embraced active ETFs. We’ve talked a lot about active ETFs. But there’s something about using rules that can make a lot of sense. It takes emotion out of it. And during times of market volatility when people, even professional money managers, might be prone to hold on to winning stocks or buy in early, the fact that this is quite simply choosing the least volatile stocks that are among the thousand largest of those large-cap companies gives me some comfort.
And so you’re probably going to get there. But as I look at the holdings, I’m seeing some stocks that people are quite familiar with and they would often think of in a defensive manner. So, Johnson & Johnson and Walmart and PepsiCo. It has some technology exposure; Corning is one of those top holdings as well. But you’re going to get exposure to some of the more defensive sectors — or more exposure to those defensive sectors — like real estate and utilities within the portfolio, but in an indexed, simple manner.
Chuck Jaffe: You know, as I prepare for this, I look at everybody else’s research as well as VettaFi’s on the funds that we talk about. Really interesting! In this case, I’m going to turn to Lipper first, because on Lipper Leader numbers, well, it’s low volatility and in preservation of capital, it gets the highest rating. It gets a five. But in consistency of return, it gets a one. It gets the lowest rating.
By the way, it’s a two-star fund for Morningstar — not that we rely on the star system, et cetera. So, this fund, judging from the research, has, on a risk-adjusted basis, been a little more touchy than some people might expect. Does that concern you at all? Or is that because we’re not measuring it in the times that you’re buying it for, and you’re buying it specifically for these times with all the idiosyncratic risk we’ve got right now?
Todd Rosenbluth: So, what I’m focusing on is where we’re going forward, or at least the time period that we’re in. It’s notable to me that the last three, let alone the last five years, the market has been led by a handful of stocks. Those were mega-cap growth stocks. You’re not going to find those within here, because volatility works both in climbing very quickly as well as falling very quickly.
And so, this is a relatively lower-risk way of getting exposure to U.S. large-cap stocks. It does not surprise me at all that in a market environment when the market has set new highs for a number of months, let alone years, a more defensive approach has lagged behind. This fund should lag behind if the market is climbing sharply higher.
I would note, and it’s a very short period of time, but in the first two months of the year when the S&P 500 — if you want to use SPY or SPLG, those are the State Street products — I believe they’re essentially flat for the year, whereas LGLV is up notably. The last I looked, I think it was up 7% — I don’t know if the data you have in front of you matches that — year-to-date.
So, this is doing better as the market broadens out. We talked about the market broadening out and owning an equal-weight approach. This is the market broadening out and taking a more defensive approach. I think this makes a lot of sense for people who want to reduce their equity exposure or reduce the risk of their equity exposure by pairing this on with something else that’s a large-cap strategy. Or if they’re nervous — if you’ve been in a bull market for such a period of time and the sell-off that we’re seeing to start March has you concerned — this can be a replacement. I think I probably got ahead of the next two questions from you.
Chuck Jaffe: But you actually got to something on this fund that I think is really important because, as I pointed out those other statistics, what I was suggesting is it would be very easy for somebody to look at this fund and kind of say, “Yeah, I’m not that impressed.” And then this is one of those funds — and I don’t know that I’ve ever asked you about this — but when I looked at this fund and I said, “Let’s look at the last, you know, 10, 15 years, whatever we’ve got to performance on an annualized basis.”
And I don’t normally look, like, how did it do in each year? But here’s the thing about this fund: It’s actually up, by the last measure that I saw, close to 8% this year, which puts it near the top of the peer group, but it only made 8% last year, which put it near the bottom of its peer group.
Here’s the thing. If you look back in 2018, when the market stunk, this fund was basically flat and slightly up, which made it one of the best performers. In 2022, when the market tanked, this fund lost a lot less than the average fund in its peer group and then was in the top 5% of its peer group. And this year, again, when there’s all this nervousness, it’s up at the top.
So, do you ever look year by year and go, “Okay, if I looked at the aggregate stat, I’d see something with that consistent return and I get nervous. But if I look at the timing of how those returns are coming, I go, ‘Yep, this is giving me the defense on…’”?
Todd Rosenbluth: So, I completely agree. I think the use case for this fund is that it is a more defensive equity strategy. So, you’d want to see from past performance that in times of market volatility, LGLV did better. But I would just add to it, as I’m looking on State Street’s website, the ten-year track record — this is annualized — is 12.4%.
So, over the last 10 years, it’s averaged 12%. Now, that’s not relative to anything, and I don’t have in front of me what the S&P 500 did, but it wouldn’t surprise me if the S&P 500, SPY, or SPLG did better. But for investors that are more defensively minded — they’re closer to retirement, they want to have equity exposure — then 12% on a consistent basis? That’s pretty appealing to me.
That’s the use case for this. This is a more defensive equity ETF, low cost, from State Street, that is the third largest of those ETF providers. Great lineup of products for people who want to add equity exposure in this environment in a more defensive manner, or if you’re nervous. This can fit in quite well. This is a good fund.
Chuck Jaffe: It is. And I’ll point out that you asked about the performance of the S&P over the last ten years, and it was closer to 15%, but the average large blend fund was about 13.5%. So again, I don’t think you and I have — certainly, I’m not surprised that it didn’t necessarily achieve the average in its category. It’s: what kind of ride did it give you, and what kind of protection did it give you in bad markets?
Todd Rosenbluth: Yeah, this fund is going to do the speed limit, maybe even a little bit below the speed limit. So, if that’s the type of investor that you are, this is a good fund for you.
Chuck Jaffe: It is LGLV. That is the State Street SPDR U.S. Large Cap Low Volatility Index ETF, the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff. Look forward to chatting with you again next week!
Todd Rosenbluth: Thanks a lot, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I’m Chuck Jaffe. And if you like what you hear here, maybe you should check out my hour-long weekday podcast. You’ll find it at MoneyLifeShow.com, or wherever you find your favorite podcasts.
Now, if you’re searching for more information on your favorite ETFs, or maybe the thing that could be your next favorite ETF—stuff we talked about here—go to VettaFi.com and dig into their tools and research to help yourself. They are on X at @Vetta_Fi, and Todd Rosenbluth, their head of research, my guest, he’s on X as well; he’s @ToddRosenbluth.
The ETF of the Week is here for you every Thursday. Make sure you don’t miss an episode by following along on your favorite podcast app. And we’ll be back with another ETF for you to consider next week. Until then, happy investing, everybody.
Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author.
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