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It has been quite a ride for a fund composed of the market's tamest stocks.

But now, just as imitators are proliferating, some experts think this popular exchanged-traded fund could be sinking back to earth.

The ETF, PowerShares S&P 500 Low Volatility, is loaded with stocks any grandparent could love: Kellogg, Coca-Cola (KO) and Procter & Gamble (PG), among others. And this stodgy-seeming play is the hottest ETF to hit the market in the past year.

Since its inception last May, investors have added $1.6 billion to the fund, more than any of the roughly 400 ETFs that debuted since the start of 2011.

The fund is supported by a growing body of academic and industry research that indicates a classic Wall Street paradigm -- that buying safe, well-established companies means sacrificing long-term gains -- is false.

Advocates say the research shows that investors in the least volatile stocks would have fared as well or better than those who put their faith in riskier names, suggesting that many of the market's most gut-wrenching ups and downs are unnecessary punishment.

"You get a win-win" by sticking with safer companies, says Ben Fulton, head of ETFs at Invesco (IVZ)'s PowerShares unit.

There now are 14 different funds that bill themselves as low-volatility or low-beta, an industry term that indicates volatility.

During its short life, the PowerShares fund has handily beaten market benchmarks, returning about 9.5%, versus a 0.7% loss for the Standard & Poor's 500 over the same period.

But there already are signs its luck has turned. Amid this year's rally, the fund's lead over the broader market has shrunk in three of the past four months. That bolsters critics, who worry that although the strategy seems appealing over the last tumultuous decade, the market winds may have shifted already.

Read more from the original source:
The Case for Stodgy Stocks