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Growth Concerns to Drive Demand for Low-Volatility ETFs
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The resurgence in COVID-19 infections once again is playing foul on Wall Street. This is especially true as the rising number of Delta variant cases have raised worries over continued economic reopening.
The latest data of U.S. Centers for Disease Control and Prevention (CDC) shows that the country is now averaging nearly 153,000 new COVID-19 cases over the last seven days. This is up 5% from the prior seven-day average and 123.6% from the year-ago period. Additionally, the new strain "Mu," which was first discovered in Columbia, has also emerged in the United States and has spread to 49 states (read: Play COVID-Themed ETFs as US Labor Day Sees Rise in New Cases).
In fact, the latest surge in infections has started to take a toll on economic growth, according to the latest edition of the Federal Reserve's Beige Book. Economic growth slowed to a moderate pace in early July through August as the Delta variant hit dining, travel and tourism industry. U.S. consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed down in July, rising just 0.3% following a revised 1.1% increase in June.
Additionally, consumer confidence dropped to a six-month low in August and hiring also slowed down. The economy added just 235,000 jobs, falling short of the analysts’ expectations of 720,000 new jobs additions, as employers cut back hiring plans amid the spread of the Delta variant of the coronavirus. This represents the fewest job growth in seven months. So far, the U.S. has recovered 17 million, or 76%, of 22.4 million jobs lost in the spring of last year, leaving the nation 5.3 million jobs below its pre-pandemic level (read: Winning ETF Areas Amid Downbeat August Jobs Data).
Further, fading fiscal stimulus and a slower service-sector recovery will act as headwinds for the rest of the year. The central bank plans to scale back its monthly bond purchases by the end of the year.
However, continued widespread vaccine rollouts, expanded stimulus, and return of earnings growth bodes well for the stock market rally. Against such a backdrop, those looking to remain invested in equity could consider low-volatility ETFs.
Why?
Low-volatility ETFs have the potential to outpace the broader market in an uncertain environment providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.
Given these characteristics, these products are in limelight yet again. We present some ETFs that could be solid options for investors amid the current market volatility. These are popular and liquid options in the low-volatility space.
This fund offers exposure to 183 stocks that have historically declined less than the market during downturns by tracking the MSCI USA Minimum Volatility Index. With AUM of $29 billion, the product charges 15 bps in annual fees and trades in solid average daily volume of 2.2 million shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
This ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index and holds 101 securities in its basket. SPLV has amassed $8.3 billion in its asset base and trades in heavy volume of around 2.1 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Defensive ETF Strategies to Fend Off September Chills).
This ETF offers exposure to 51 stocks that have historically provided high dividend yields and low volatility. It has amassed $3 billion and charges 30 bps in annual fees. The fund trades in an average daily volume of 462,000 shares.
This fund offers exposure to the mid-cap segment with the lowest-realized volatility over the past 12 months. It follows the S&P MidCap 400 Low Volatility Index and holds 81 securities in its basket. The ETF has AUM of $1.4 billion and charges 25 bps in annual fees. It trades in an average daily volume of about 76,000 shares.
This ETF follows the LibertyQ U.S. Large Cap Equity Index, which employs a rules-based, custom multi-factor approach providing exposure to four well known factors: 50% Quality, 30% Value, 10% Momentum and 10% Low Volatility. It has 255 stocks in its basket with AUM of $1.2 billion and expense ratio of 0.15%. The ETF trades in volume of 71,000 shares per day on average and has a Zacks ETF Rank #2 (Buy).
This fund targets the small-cap segment of the broad market and follows the S&P SmallCap 600 Index. It holds 121 stocks in its basket and charges 25 bps in annual fees. The product has amassed $1.1 billion and trades in volume of 73,000 shares per day on average.
Bottom Line
These products could be worthwhile for investors with low-risk tolerance and have the potential to outperform the broader market, especially, if the surge in coronavirus infection continues to unsettle the stock market.
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Growth Concerns to Drive Demand for Low-Volatility ETFs
The resurgence in COVID-19 infections once again is playing foul on Wall Street. This is especially true as the rising number of Delta variant cases have raised worries over continued economic reopening.
The latest data of U.S. Centers for Disease Control and Prevention (CDC) shows that the country is now averaging nearly 153,000 new COVID-19 cases over the last seven days. This is up 5% from the prior seven-day average and 123.6% from the year-ago period. Additionally, the new strain "Mu," which was first discovered in Columbia, has also emerged in the United States and has spread to 49 states (read: Play COVID-Themed ETFs as US Labor Day Sees Rise in New Cases).
In fact, the latest surge in infections has started to take a toll on economic growth, according to the latest edition of the Federal Reserve's Beige Book. Economic growth slowed to a moderate pace in early July through August as the Delta variant hit dining, travel and tourism industry. U.S. consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed down in July, rising just 0.3% following a revised 1.1% increase in June.
Additionally, consumer confidence dropped to a six-month low in August and hiring also slowed down. The economy added just 235,000 jobs, falling short of the analysts’ expectations of 720,000 new jobs additions, as employers cut back hiring plans amid the spread of the Delta variant of the coronavirus. This represents the fewest job growth in seven months. So far, the U.S. has recovered 17 million, or 76%, of 22.4 million jobs lost in the spring of last year, leaving the nation 5.3 million jobs below its pre-pandemic level (read: Winning ETF Areas Amid Downbeat August Jobs Data).
Further, fading fiscal stimulus and a slower service-sector recovery will act as headwinds for the rest of the year. The central bank plans to scale back its monthly bond purchases by the end of the year.
However, continued widespread vaccine rollouts, expanded stimulus, and return of earnings growth bodes well for the stock market rally. Against such a backdrop, those looking to remain invested in equity could consider low-volatility ETFs.
Why?
Low-volatility ETFs have the potential to outpace the broader market in an uncertain environment providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.
Given these characteristics, these products are in limelight yet again. We present some ETFs that could be solid options for investors amid the current market volatility. These are popular and liquid options in the low-volatility space.
iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)
This fund offers exposure to 183 stocks that have historically declined less than the market during downturns by tracking the MSCI USA Minimum Volatility Index. With AUM of $29 billion, the product charges 15 bps in annual fees and trades in solid average daily volume of 2.2 million shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Invesco S&P 500 Low Volatility ETF (SPLV - Free Report)
This ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index and holds 101 securities in its basket. SPLV has amassed $8.3 billion in its asset base and trades in heavy volume of around 2.1 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Defensive ETF Strategies to Fend Off September Chills).
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report)
This ETF offers exposure to 51 stocks that have historically provided high dividend yields and low volatility. It has amassed $3 billion and charges 30 bps in annual fees. The fund trades in an average daily volume of 462,000 shares.
Invesco S&P MidCap Low Volatility ETF (XMLV - Free Report)
This fund offers exposure to the mid-cap segment with the lowest-realized volatility over the past 12 months. It follows the S&P MidCap 400 Low Volatility Index and holds 81 securities in its basket. The ETF has AUM of $1.4 billion and charges 25 bps in annual fees. It trades in an average daily volume of about 76,000 shares.
Franklin LibertyQ U.S. Equity ETF (FLQL - Free Report)
This ETF follows the LibertyQ U.S. Large Cap Equity Index, which employs a rules-based, custom multi-factor approach providing exposure to four well known factors: 50% Quality, 30% Value, 10% Momentum and 10% Low Volatility. It has 255 stocks in its basket with AUM of $1.2 billion and expense ratio of 0.15%. The ETF trades in volume of 71,000 shares per day on average and has a Zacks ETF Rank #2 (Buy).
Invesco S&P SmallCap Low Volatility ETF (XSLV - Free Report)
This fund targets the small-cap segment of the broad market and follows the S&P SmallCap 600 Index. It holds 121 stocks in its basket and charges 25 bps in annual fees. The product has amassed $1.1 billion and trades in volume of 73,000 shares per day on average.
Bottom Line
These products could be worthwhile for investors with low-risk tolerance and have the potential to outperform the broader market, especially, if the surge in coronavirus infection continues to unsettle the stock market.