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Low-Volatility ETFs in Focus on Virus & Fed Taper Worries
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Low-volatility ETFs are in vogue once again as volatility has returned to the market. This is especially true as worries over the new variant of COVID-19 as well as the Fed’s hawkish view have made investors jittery.
We present five ETFs — iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) , Invesco S&P MidCap Low Volatility ETF (XMLV - Free Report) and Invesco S&P SmallCap Low Volatility ETF (XSLV - Free Report) — that could be solid options for investors amid the current market volatility. These are popular and liquid options in the low-volatility space.
Macro Trends
The S&P 500 Index suffered its worst two-day selloff since October 2020. The spread of the COVID-19, Omicron, has sparked fears of restriction measures and another wave of lockdown. This will dampen economic growth, which is recovering from the pandemic lows. Meanwhile, Federal Reserve Chair Jerome Powell signaled that the central bank is planning to accelerate the withdrawal of its bond-buying program at its December meeting to combat a surge in inflation (read: Sail Through Omicron-Induced Market Volatility With These ETFs).
Additionally, consumer confidence dropped to a nine-month low in November, according to the Conference Board, amid worries about the rising cost of living and resurgence in the pandemic. U.S. households have been grappling with soaring prices this year, as businesses are passing a portion of the price increases on to consumers due to labor and raw material shortages.
However, the economy has rebounded strongly and growth is currently near the pre-pandemic levels after shrinking 30% in the first six months of 2020. Confidence among the large U.S. companies jumped to an all-time high as indicated by the solid manufacturing data. Manufacturing activity grew at a faster pace in November with producers trying to keep up with demand amid ongoing supply shortages and delays. The manufacturing sector recorded 18 straight months of growth going back to the spring of 2020 when the pandemic broke.
Why Low-Volatility ETFs?
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 the limelight. We have highlighted the above-mentioned ETFs in detail below:
iShares MSCI USA Min Vol Factor ETF offers exposure to the stocks that have historically declined less than the market during downturns by tracking the MSCI USA Minimum Volatility Index. iShares MSCI USA Min Vol Factor ETF holds 172 stocks in its basket with none accounting for more than 1.6% of the assets. Information technology takes the top spot at 24.6% while healthcare, communication, and consumer staples round off the next three spots (read: ETF Areas to Gain/Lose on Fear of Omicron Strain of Coronavirus).
With AUM of $30.4 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 4.1 million shares. USMV has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Invesco S&P 500 Low Volatility 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. Invesco S&P 500 Low Volatility ETF is widely spread across sectors with consumer staples, utilities, industrials, and healthcare receiving double-digit exposure each.
Invesco S&P 500 Low Volatility ETF has amassed $8.2 billion in its asset base and trades in heavy volume of around 3.4 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.
Invesco S&P 500 High Dividend Low Volatility ETF offers exposure to 51 stocks traded on the S&P 500 Index that historically have provided high dividend yields and low volatility. It follows the S&P 500 Low Volatility High Dividend Index. Invesco S&P 500 High Dividend Low Volatility ETF is widely spread across sectors with utilities, consumer staples, and healthcare receiving double-digit exposure each.
Invesco S&P 500 High Dividend Low Volatility ETF has amassed $2.9 billion and charges 30 bps in annual fees. The fund trades in an average daily volume of 461,000 shares.
Invesco S&P MidCap Low Volatility ETF offers exposure to the mid-cap securities from the S&P MidCap 400 Index 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. Invesco S&P MidCap Low Volatility ETF is widely spread across sectors with industrials, real estate, utilities, financials and materials receiving the double-digit exposure each.
Invesco S&P MidCap Low Volatility ETF has AUM of $1.3 billion and charges 25 bps in annual fees. XMLV trades in an average daily volume of about 87,000 shares.
Invesco S&P SmallCap Low Volatility ETF offers exposure to small-cap securities from the S&P SmallCap 600 Index with the lowest realized volatility over the past 12 months. It follows the S&P SmallCap 600 Index and holds 121 stocks in its basket. Invesco S&P SmallCap Low Volatility ETF is also widely spread across sectors with financials, industrials, information technology, and real estate receiving the double-digit exposure each (read: Bet on Small-Cap ETFs for Outperformance).
Invesco S&P SmallCap Low Volatility ETF has amassed $1.2 billion and trades in volume of 85,000 shares per day on average. The product charges 25 bps in annual fees.
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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Low-Volatility ETFs in Focus on Virus & Fed Taper Worries
Low-volatility ETFs are in vogue once again as volatility has returned to the market. This is especially true as worries over the new variant of COVID-19 as well as the Fed’s hawkish view have made investors jittery.
We present five ETFs — iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) , Invesco S&P MidCap Low Volatility ETF (XMLV - Free Report) and Invesco S&P SmallCap Low Volatility ETF (XSLV - Free Report) — that could be solid options for investors amid the current market volatility. These are popular and liquid options in the low-volatility space.
Macro Trends
The S&P 500 Index suffered its worst two-day selloff since October 2020. The spread of the COVID-19, Omicron, has sparked fears of restriction measures and another wave of lockdown. This will dampen economic growth, which is recovering from the pandemic lows. Meanwhile, Federal Reserve Chair Jerome Powell signaled that the central bank is planning to accelerate the withdrawal of its bond-buying program at its December meeting to combat a surge in inflation (read: Sail Through Omicron-Induced Market Volatility With These ETFs).
Additionally, consumer confidence dropped to a nine-month low in November, according to the Conference Board, amid worries about the rising cost of living and resurgence in the pandemic. U.S. households have been grappling with soaring prices this year, as businesses are passing a portion of the price increases on to consumers due to labor and raw material shortages.
However, the economy has rebounded strongly and growth is currently near the pre-pandemic levels after shrinking 30% in the first six months of 2020. Confidence among the large U.S. companies jumped to an all-time high as indicated by the solid manufacturing data. Manufacturing activity grew at a faster pace in November with producers trying to keep up with demand amid ongoing supply shortages and delays. The manufacturing sector recorded 18 straight months of growth going back to the spring of 2020 when the pandemic broke.
Why Low-Volatility ETFs?
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 the limelight. We have highlighted the above-mentioned ETFs in detail below:
iShares MSCI USA Min Vol Factor ETF (USMV - Free Report)
iShares MSCI USA Min Vol Factor ETF offers exposure to the stocks that have historically declined less than the market during downturns by tracking the MSCI USA Minimum Volatility Index. iShares MSCI USA Min Vol Factor ETF holds 172 stocks in its basket with none accounting for more than 1.6% of the assets. Information technology takes the top spot at 24.6% while healthcare, communication, and consumer staples round off the next three spots (read: ETF Areas to Gain/Lose on Fear of Omicron Strain of Coronavirus).
With AUM of $30.4 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 4.1 million shares. USMV has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Invesco S&P 500 Low Volatility ETF (SPLV - Free Report)
Invesco S&P 500 Low Volatility 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. Invesco S&P 500 Low Volatility ETF is widely spread across sectors with consumer staples, utilities, industrials, and healthcare receiving double-digit exposure each.
Invesco S&P 500 Low Volatility ETF has amassed $8.2 billion in its asset base and trades in heavy volume of around 3.4 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.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report)
Invesco S&P 500 High Dividend Low Volatility ETF offers exposure to 51 stocks traded on the S&P 500 Index that historically have provided high dividend yields and low volatility. It follows the S&P 500 Low Volatility High Dividend Index. Invesco S&P 500 High Dividend Low Volatility ETF is widely spread across sectors with utilities, consumer staples, and healthcare receiving double-digit exposure each.
Invesco S&P 500 High Dividend Low Volatility ETF has amassed $2.9 billion and charges 30 bps in annual fees. The fund trades in an average daily volume of 461,000 shares.
Invesco S&P MidCap Low Volatility ETF (XMLV - Free Report)
Invesco S&P MidCap Low Volatility ETF offers exposure to the mid-cap securities from the S&P MidCap 400 Index 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. Invesco S&P MidCap Low Volatility ETF is widely spread across sectors with industrials, real estate, utilities, financials and materials receiving the double-digit exposure each.
Invesco S&P MidCap Low Volatility ETF has AUM of $1.3 billion and charges 25 bps in annual fees. XMLV trades in an average daily volume of about 87,000 shares.
Invesco S&P SmallCap Low Volatility ETF (XSLV - Free Report)
Invesco S&P SmallCap Low Volatility ETF offers exposure to small-cap securities from the S&P SmallCap 600 Index with the lowest realized volatility over the past 12 months. It follows the S&P SmallCap 600 Index and holds 121 stocks in its basket. Invesco S&P SmallCap Low Volatility ETF is also widely spread across sectors with financials, industrials, information technology, and real estate receiving the double-digit exposure each (read: Bet on Small-Cap ETFs for Outperformance).
Invesco S&P SmallCap Low Volatility ETF has amassed $1.2 billion and trades in volume of 85,000 shares per day on average. The product charges 25 bps in annual fees.
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.