What is IDLV? (Pros, Cons, and Strategies)

Investing in international markets can provide diversification and exposure to economic growth outside the U.S. For those looking to mitigate volatility while tapping into global opportunities, the Invesco S&P International Developed Low Volatility ETF (IDLV) is a compelling option. In this blog post, we'll explore what IDLV is, its advantages and disadvantages, and effective investment strategies.


What is IDLV?

IDLV stands for Invesco S&P International Developed Low Volatility ETF. It is an exchange-traded fund designed to invest in international stocks with relatively low volatility.

IDLV tracks the performance of the S&P BMI International Developed Low Volatility Index, which is composed of international developed market stocks with lower volatility characteristics compared to the broader market. This ETF aims to provide investors with stable returns and reduced risk by focusing on less volatile, non-U.S. equities.

Key Features of IDLV

• Stocks from developed markets outside the United States
• Selection based on historical price volatility
• Focus on reducing overall portfolio risk

The index that IDLV follows ranks securities based on historical 12-month volatility and selects the least volatile stocks. This methodology provides a defensive approach to international equity investment.

IDLV Composition

IDLV includes well-known international firms such as Nestle (NSRGY), Roche Holding (RHHBY), and Novartis (NVS). The ETF generally focuses on companies with strong balance sheets, stable earnings, and lower historical volatility. The sectors included usually span across consumer staples, healthcare, and utilities, which are traditionally less volatile sectors.

Pros of IDLV

Reduced Volatility

One of the main attractions of IDLV is its reduced volatility compared to broader international markets. By focusing on stocks with historically lower price volatility, IDLV aims to provide investors with a smoother investment journey, making it easier to endure market downturns. This can be especially appealing for risk-averse investors or those close to retirement.

International Diversification

IDLV offers significant international diversification, allowing investors to spread their risk across multiple geographic regions and sectors. This diversification can help balance a portfolio heavily weighted towards U.S. equities and provide exposure to growth opportunities in developed markets outside the United States.

Stable Dividend Income

While IDLV does not primarily focus on high dividends, it offers a stable and consistent dividend income from well-established international companies. This can be an appealing feature for income-seeking investors looking for a reliable source of income with lower volatility.

Cons of IDLV

Limited Growth Potential

IDLV focuses on low-volatility stocks, which often means investing in companies that are more established but may have slower growth rates. This can limit the overall upside potential compared to more aggressive growth-oriented international ETFs.

Currency Risk

Investing in international markets comes with the added risk of currency fluctuations. Changes in exchange rates can impact the returns from international investments. While IDLV offers exposure to global equities, investors must consider the potential effects of currency risk on their overall return.

Higher Expense Ratio

Compared to some other ETFs, IDLV has a relatively higher expense ratio, which could affect long-term returns. It's essential to consider these costs when evaluating the ETF's potential role in your portfolio.

IDLV Investment Strategies

Given its unique focus, IDLV is best suited for particular investment strategies that align with its strengths and limitations.

Long-term Investment Strategy

IDLV is ideal for long-term investors looking to reduce portfolio volatility while gaining exposure to international markets. With its emphasis on low volatility, IDLV can provide stable growth and diversify a U.S.-centric portfolio. A minimum investment horizon of 5-10 years is recommended to smooth out market fluctuations and take full advantage of the ETF's stability.

Core Holding for Defensive Investors

For defensive investors focused on preserving capital, IDLV can serve as a core holding within a diversified portfolio. Its emphasis on stable, lower-risk international stocks makes it a dependable choice for those prioritizing safety and income over high growth.

Currency-hedged Allocations

To mitigate currency risk, investors might consider pairing IDLV with currency-hedged ETFs or other strategies that reduce exposure to currency fluctuations. Being mindful of currency movements can help preserve the returns from international investments.

Conclusion

IDLV stands out as a low-volatility international ETF that offers reduced risk and stable returns. While it comes with certain limitations like lower growth potential and currency risk, its benefits of reduced volatility, international diversification, and stable income make it an attractive option for long-term investors and defensive portfolios. By understanding its unique features and strategically incorporating it into your investment plan, IDLV can be a valuable component of a well-rounded portfolio.