For example, if the MSCI USA Index has 7 percent in utilities, the iShares ETF can't hold more than 12 percent or less than 2 percent in that sector. If the fund skews from that cap, it fixes it when it rebalances.

Like the low-vol MSCI Index it tracks, the iShares ETF only rebalances twice a year, which means investors could get stuck in securities that are increasingly volatile for a few months.     

"If the appeal of the product is that you are in the least risky stocks, then hopefully the portfolios make the changes fast enough," said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.

Meanwhile, the much smaller $22.6 million SPDR Russell 1000 Low Volatility ETF caps its weightings by other factors, such as momentum and liquidity. This ETF tracks the Russell 1000 Low Volatility Index.

Performance of the three ETFs varies widely. Since volatility started trending upward in September, all of the funds have outperformed their respective broader market indices, according to Lipper. But the PowerShares ETF returned 10.31 percent, outperforming the S&P by five percentage points and beating the iShares ETF, which returned 9.97 percent, and the SPDR ETF, which returned 7.97 percent, according to Lipper. The Russell 1000 Index returned 5.44 percent and the MSCI USA Index returned 5.45 percent for the same period.

This year, the iShares ETF has outperformed the other two ETFs by more than one percentage point, largely because technology -- which makes up more than 9 percent of the iShares ETF -- has returned 2.7 percent this year.

Meanwhile, utilities, which make up more than 17 percent of the PowerShares ETF, are down 4.7 percent.

"We do not have the data yet to see what happens with these funds when the markets fall sharply," Todd Rosenbluth, director of mutual fund research at S&P Capital IQ, said, noting that the funds are only a few years old.
   
To Bet On Sectors Or Not

PowerShares believes that by not having caps on sector weightings, it is able to invest in the least volatile securities in the S&P 500, said Nick Kalivas, senior strategist in the equity group of PowerShares.

And the ETF mitigates the possible risk of not having sector caps by rebalancing quarterly.