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Why Is This the Right Time to Invest in Low-Volatility ETFs?

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U.S. markets may have bounced back at the news of AstraZeneca’s (AZN - Free Report) resumption of its phase 3 trial, but gains have been limited as the fear factor remains in investors’ mind.  Apart from the uncertainty related to the timing of the rollout of coronavirus vaccine, chances of a no-deal Brexit may also undermine the market momentum any time.

Drugmaker AstraZeneca said during the weekend that it has resumed British clinical trials of its COVID-19 vaccine, one of the most-advanced in development, after receiving a nod from safety watchdogs. A flurry of global M&A activity is also acting as another positive.

Frankfurt-listed shares of Immunomedics (IMMU) gained more than 100% on news that Gilead Sciences (GILD) will acquire the U.S. biopharmaceutical company for $21 billion. There are reports of Oracle (ORCL) winning the bid for the U.S. arm of TikTok over Microsoft (MSFT).

While these are positives for the risk-on sentiments that may spur an equity rally, rising coronavirus cases globally are negative. The World Health Organization reported a record one-day increase in global coronavirus cases on Sep 13, with the total rising by 307,930 in 24 hours. The biggest increases were from India, the United States and Brazil.

“There is still some caution in markets because U.S. virus numbers appear to be picking up again in some states,” said Seema Shah, chief strategist at Principal Global Investors, as quoted on Reuters. With this, opportunities for low-volatility and high-quality ETFs remain alive, no matter what high stocks and ETFs hit.

Low-volatility ETFs could be a solution to the present scenario where risk-on sentiments can be accessed in a measured manner. This is why below we highlight some options.

iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)

The underlying MSCI USA Minimum Volatility Index is composed of U.S. equities that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market. Information Technology, Health Care, Consumer Staples and Financials have a double-digit weight in the fund. The fund charges 15 bps in fees. The fund has gained 7.3% in the past three months versus 9.9% gains in the S&P 500.

Invesco S&P 500 Low Volatility ETF (SPLV - Free Report)

The underlying S&P 500 Low Volatility Index consists of the 100 stocks from the S&P 500 Index, with the lowest-realized volatility over the past 12 months. SPLV is heavy on Health Care (24.80%), Consumer Staples (24.52%), and Industrials (14.57%). The fund charges 25 bps in fees. SPLV is up 10.6% in the past three months.

iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report)

The fund gives exposure to large- and mid-cap U.S. stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage). Information Technology is the top sector (26.78%) in the fund, followed by Health Care (14.26%), Consumer Discretionary (11.55%) and Communication (11.24%). The fund has added 10.4% in the past three months.

Invesco S&P 500 Quality ETF (SPHQ - Free Report)

The underlying S&P 500 Quality Index tracks the performance of stocks on the S&P 500 Index that have the highest quality score, which is calculated on three fundamental measures — return on equity, accruals ratio and financial leverage ratio. Here, Information Technology takes the top position at 39.88%, while Health Care occupies the second position at 23.3%. The fund is up 12% in the past three months.

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