Sector Volatility Conveys Most (But Not All) of the Story in the Latest S&P 500 Low Volatility Index Rebalance

In January 2018, realized volatility (rolling 252-day) for the S&P 500 reached a 27-year low. Since then, volatility has been steadily creeping up and as of April 30, 2018, it sat at 12.1%—almost double the levels in January. Despite having increased significantly, volatility is still well below the historical average of 16%.

Rolling 252-Day Volatility for the S&P 500

The recent increase in volatility was more or less distributed equitably across sectors. In the comparable time frame, volatility increased for every sector of the S&P 500. Notably, volatility in Technology jumped the most in the last three months while Utilities was relatively more stable.

252-Day Volatility Jumped Across All S&P 500 Sectors Compared to Three Months Ago

In the latest rebalance, shifts in the sector weights of the S&P 500 Low Volatility Index® (the index tracks the 100 least volatile stocks in the S&P 500) mostly conform to the story that sector volatility conveyed. Real Estate, Consumer Staples and Utilities were the sectors that had the biggest increases. Most of those gains came at the expense of the Financials and Industrials. The biggest surprise was Technology, which had the biggest jump in volatility among S&P 500 sectors but only declined 1% in Low Volatility’s allocation. Historically, Low Volatility has typically held little to no weight in Technology so the sector’s recent prominence is certainly an anomaly. The negligible decline in Technology’s allocation despite experiencing the biggest increase in volatility points to pockets of stability at the stock level within this sector.

Real Estate Added the Most Weight in the Latest Rebalance for the S&P 500 Low Volatility Index

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