This low volatility ETF is ripe for a rebound, UBS says
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Investors should stay away from what has worked in the opening months of 2023 and focus instead on investment options that will hold their own in a downturn, according to UBS. David Perlman, an ETF strategist at the bank, said in a note to clients that UBS added the Invesco S & P 500 Low Volatility ETF (SPLV) to its list of favorite exchange traded funds. The SPLV, which holds the 100 stocks in the S & P 500 with the lowest realized volatility over the past 12 months, was rebalanced in February and now holds sizeable positions in some of UBS's favorite sectors. "SPLV's current sector positioning, which includes overweights to consumer staples, utilities, and industrials and underweights to consumer discretionary and technology, is in line with our sector preferences," Perlman said. "Importantly, SPLV's index allows for large sector deviations from the benchmark and sector tilts are dynamic." The fund's top holdings include PepsiCo , Johnson & Johnson and McDonald's . Utilities and consumer staples are its two largest sector weights, according to Invesco . Notably, this suggestion means that UBS is calling for investors to ignore what has worked in 2023 so far. In the first quarter of the year, tech stocks have been big winners for investors while the SPLV has dropped about 4% on a total return basis. The fund has also suffered about $900 million in outflows so far this year, and now holds about $9 billion, according to FactSet. The contrarian call serves as a prediction that markets will revert back to much of what worked in 2022. The fund has outperformed the S & P 500 over the past year, with a loss of 6% on a total return basis versus down 10.9% for the SPDR S & P 500 ETF, even when accounting for SPLV's 0.25% expense ratio and its poor first quarter. And the fund has delivered on the promise in its label. Over the past year, the SPLV has a beta of 0.574 against the MSCI USA Large Cap Index, according to FactSet, which means it has been far less volatile than the broader market. One area that worked last year but UBS is cooler on now is energy. UBS removed several energy funds from its list of preferred ETFs, including the iShares U.S. Oil & Gas Exploration & Production ETF (XOP) . — CNBC's Michael Bloom contributed to this report.