After delivering handsome returns last year, the U.S. equity markets have started the year on a weak note.  Slumping crude oil prices. strong dollar and global growth concerns with Europe fighting deflation, Japan still struggling in a recession and China losing steam, are weighing upon the market sentiment, leading to increased market volatility.

As a result, low volatility funds are gaining immense popularity as they provide improved risk adjusted returns in a choppy market. Given the trend, Direxion has recently filed for a product focusing on this niche segment (read: A Strong Start to Safe Haven ETFs in 2015 ).

Below, we have highlighted some of the details of the newly filed product. 

Direxion Value Line Conservative Equity ETF

As per the SEC filing. the fund seeks to track the Value Line Conservative Equity Index. The index consists of roughly 170 U.S. stocks that have been selected using Value Line’s proprietary Safety Ranking. The ranking methodology measures the total risk of a stock and its capability to withstand an overall equity market downturn relative to the other stocks in the Value Line universe which consists of roughly 4,000 stocks.

The total risk or volatility of each stock is measured through its Price Stability Score and Financial Strength rating. The Price Stability score for a stock is based on a ranking of the standard deviation of weekly percentage changes in the price of the stock over the past five years.

For the Financial Strength rating, a number of balance sheet and income statement factors like the company’s long-term debt to total capital ratio, short-term debt and amount of cash on hand are reviewed to assign a ranking.

Sector-wise, consumer staples and health care form a large part of the index (read: 4 Sector ETFs to Watch for Gains in 2015 ).

How Does it Fit in a Portfolio?

The product could be an interesting choice for investors seeking to avoid market volatility but remain invested in stocks.  Low volatility products have proven beneficial for investors given their superior risk adjusted returns.

These funds have gained immense popularity in the past few months given increased market volatility on the back of global growth concerns, slumping crude prices and worries related to the timing of interest rate hike in the U.S. (read: Any Hope for a Gold and Oil ETF Rebound in 2015? ).

ETF Competition

There are quite a number of funds targeting the low volatility space. Among them, PowerShares S&P 500 Low Volatility Portfolio ( SPLV ) is expected to be the biggest competitor for the newly filed ETF.

SPLV is the largest and the most popular ETF in the low volatility space with AUM of $5.2 billion and average trading volume of 1.8 million shares. The fund charges 25 bps in annual fees and is up about 17.6% in the past one year. It provides exposure to about 101 U.S. stocks with the lowest realized volatility over the past 12 months by tracking the S&P 500 Low Volatility Index.

The next popular ETF is the MSCI USA Minimum Volatility Index Fund ( USMV ). This ETF has amassed over $3.6 billion in assets and holds 158 securities. The funds tracks the MSCI USA Minimum Volatility (USD) Index to provide exposure to U.S. equities that have low volatility relative to the broader U.S. equity market. The fund charges 15 basis points as fees and has gained 16.5% in the past one year (read: Low Risk ETFs Beating SPY in 2014 ).

Though there are quite a number of funds targeting the low volatility space, the newly filed fund, if launched, might still be able to find a place for itself given the high demand for these products now.

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