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Here's Why it Makes Sense to Invest in Low-Volatility ETFs Now
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Wall Street has had a rocky start to 2022 as interest rates continue to rise. The S&P 500, which has lost about 2% since the beginning of this new year, has also witnessed a decline for five straight trading days. The Nasdaq Composite was lagging its record closing high from November by more than 9% when at its lowest point on Jan 10. In fact, the tech-heavy index has lost more than 4% since the beginning of January.
There is no denying that the rising benchmark 10-year Treasury yields, which went up as high as above 1.8% on Jan 10 after standing at 1.51% on Dec 31, are the reason behind the market bloodbath. Growth sectors like the tech space have been feeling the pain of rising bond yields as the same decreases the relative value of future earnings, making the popular stocks seem overvalued. Tech companies also face hurdles in funding their growth and buying back stocks due to higher rates (per a CNBC article).
Investors willing to sail through the current market turbulences from the rising interest rates-related concerns can consider iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , iShares MSCI Global Min Vol Factor ETF (ACWV - Free Report) and Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) .
The Federal Reserve has already started tapering the bond purchases, which it expects to complete by March. The Fed is expected to begin raising its benchmark interest rate in March. The Federal Reserve may take a more aggressive approach in raising interest rates.
In fact, Goldman Sachs is expecting the Federal Reserve to increase interest rates four times this year. In this regard, Jan Hatzius, chief economist at Goldman Sachs has commented that “Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks. We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022,” as mentioned in a CNBC article.
The ISM Manufacturing PMI in the United States slid to 58.7 in December of 2021 from 61.1 in November, lagging market forecasts of 60. The reading highlighted the weakest growth in factory activity since January due to softness in new orders growth (60.4 vs. 61.5). Going on, the latest jobs report for December looks disappointing. The U.S. economy added 199,000 jobs in December 2021, lagging market estimates of 400,000. Non-farm employment has increased by 18.8 million since April 2020 but is still down by 2.3% from its pre-pandemic level in February 2020.
Low-Volatility ETFs to the Rescue
Low-volatility products could be intriguing choices for those who want to continue investing in equities in turbulent market conditions. Consider the following exciting options:
iShares MSCI USA Min Vol Factor ETF offers exposure to 184 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. With AUM of $29.53 billion, iShares MSCI USA Min Vol Factor ETF charges 0.15% in expense ratio (read: Top ETF Stories of 2021 & 2022 Outlook).
Invesco S&P 500 Low Volatility ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. The fund is based on the S&P 500 Low Volatility Index and holds 102 securities in its basket. Invesco S&P 500 Low Volatility ETF hasAUM of $9.47 billion and charges an expense ratio of 25 basis points (bps) as stated in the prospectus (read: 5 ETFs Trading At New Highs).
iShares MSCI Global Min Vol Factor ETF provides exposure to global stocks with potentially less risk. ACWV tracks the MSCI All Country World Minimum Volatility Index and holds 398 securities. iShares MSCI Global Min Vol Factor ETF has AUM of $5.47 billion and charges 20 bps in annual fees.
Invesco S&P 500 High Dividend Low Volatility ETF seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. It holds 49 securities. Invesco S&P 500 High Dividend Low Volatility ETF has AUM of $3.15 billion and charges 30 bps in annual fees.
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Here's Why it Makes Sense to Invest in Low-Volatility ETFs Now
Wall Street has had a rocky start to 2022 as interest rates continue to rise. The S&P 500, which has lost about 2% since the beginning of this new year, has also witnessed a decline for five straight trading days. The Nasdaq Composite was lagging its record closing high from November by more than 9% when at its lowest point on Jan 10. In fact, the tech-heavy index has lost more than 4% since the beginning of January.
There is no denying that the rising benchmark 10-year Treasury yields, which went up as high as above 1.8% on Jan 10 after standing at 1.51% on Dec 31, are the reason behind the market bloodbath. Growth sectors like the tech space have been feeling the pain of rising bond yields as the same decreases the relative value of future earnings, making the popular stocks seem overvalued. Tech companies also face hurdles in funding their growth and buying back stocks due to higher rates (per a CNBC article).
Investors willing to sail through the current market turbulences from the rising interest rates-related concerns can consider iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , iShares MSCI Global Min Vol Factor ETF (ACWV - Free Report) and Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) .
The Federal Reserve has already started tapering the bond purchases, which it expects to complete by March. The Fed is expected to begin raising its benchmark interest rate in March. The Federal Reserve may take a more aggressive approach in raising interest rates.
In fact, Goldman Sachs is expecting the Federal Reserve to increase interest rates four times this year. In this regard, Jan Hatzius, chief economist at Goldman Sachs has commented that “Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks. We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022,” as mentioned in a CNBC article.
The ISM Manufacturing PMI in the United States slid to 58.7 in December of 2021 from 61.1 in November, lagging market forecasts of 60. The reading highlighted the weakest growth in factory activity since January due to softness in new orders growth (60.4 vs. 61.5). Going on, the latest jobs report for December looks disappointing. The U.S. economy added 199,000 jobs in December 2021, lagging market estimates of 400,000. Non-farm employment has increased by 18.8 million since April 2020 but is still down by 2.3% from its pre-pandemic level in February 2020.
Low-Volatility ETFs to the Rescue
Low-volatility products could be intriguing choices for those who want to continue investing in equities in turbulent market conditions. Consider the following exciting options:
iShares MSCI USA Min Vol Factor ETF (USMV - Free Report)
iShares MSCI USA Min Vol Factor ETF offers exposure to 184 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. With AUM of $29.53 billion, iShares MSCI USA Min Vol Factor ETF charges 0.15% in expense ratio (read: Top ETF Stories of 2021 & 2022 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. The fund is based on the S&P 500 Low Volatility Index and holds 102 securities in its basket. Invesco S&P 500 Low Volatility ETF hasAUM of $9.47 billion and charges an expense ratio of 25 basis points (bps) as stated in the prospectus (read: 5 ETFs Trading At New Highs).
iShares MSCI Global Min Vol Factor ETF (ACWV - Free Report)
iShares MSCI Global Min Vol Factor ETF provides exposure to global stocks with potentially less risk. ACWV tracks the MSCI All Country World Minimum Volatility Index and holds 398 securities. iShares MSCI Global Min Vol Factor ETF has AUM of $5.47 billion and charges 20 bps in annual fees.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report)
Invesco S&P 500 High Dividend Low Volatility ETF seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. It holds 49 securities. Invesco S&P 500 High Dividend Low Volatility ETF has AUM of $3.15 billion and charges 30 bps in annual fees.