What are we looking for?
If January maintains its reputation as the trendsetter for the rest of the year, this could be a nasty one. Coming off a year that was both relatively stable and generally rewarding for stock investors, uncertainty has crept back into all corners of the market. Some emerging market economies are trying to stop currency runs, the loonie is in a tailspin, the Canadian economic outlook is darkening and the implications of the U.S. Federal Reserve’s slow withdrawal of monetary accommodation remains unclear.
After all that, the S&P/TSX composite index is pretty well flat year to date. But the volatility seen throughout the month tested fragile nerves. For investors who value their sleep, we looked for low-volatility stocks in turbulent times.
How we did it
There are many ways to measure volatility, but one simple way to track stable stocks is through the PowerShares S&P/TSX Composite Low Volatility Index ETF, which – before fees and expenses – tracks the S&P/TSX Composite Low Volatility Index. The ETF includes 50 Canadian equities exhibiting the lowest volatility over the past year – the least volatile get the highest weightings, which are rebalanced quarterly. We produced a table of the ETF’s current top 20 weightings.
What we found
Not surprisingly, the list is dominated by large-cap companies, with Canadian banks residing at the top of the list. The stocks included have an average dividend yield well in excess of the market average, while price-to-earnings ratios are generally lower than the S&P/TSX average.
Of course, peace of mind can come at a price. While Standard & Poor’s found its index’s returns generally outpaced the market when it introduced its low volatility index in 2012, the ETF has underperformed the TSX benchmark in price gains both in 2013 (7.8 per cent versus 9.6 per cent, respectively) and year to date (minus 1.8 per cent for the ETF compared with 0.8 per cent for the S&P/TSX).
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PowerShares S&P/TSX Comp. Low Volatility Index ETF (Top 20 weightings)
- Laurentian Bank of Canada$53.12+0.04(+0.08%)
- Bank of Montreal$91.53-0.24(-0.26%)
- Toronto-Dominion Bank$63.730.00(0.00%)
- National Bank of Canada$55.29-0.29(-0.52%)
- Canadian Imperial Bank of Commerce$106.94+0.27(+0.25%)
- Bank of Nova Scotia$77.09-0.31(-0.40%)
- Royal Bank of Canada$92.25-0.25(-0.27%)
- First Capital Realty Inc$19.76-0.06(-0.30%)
- Fortis Inc$45.40-0.13(-0.29%)
- PowerShares S&P/TSX Comp Low Volatility Idx ETF$27.72-0.16(-0.57%)
- Updated August 18 3:47 PM EDT. Delayed by at least 15 minutes.