Back to top

Image: Shutterstock

5 Low-Beta ETFs to Buy Amid Market Volatility

Read MoreHide Full Article

The global stock market has been in a wild swing due to Russia’s invasion of Ukraine. Russia launched an attack on the eastern part of Ukraine, and a number of Western countries increased sanctions against Russia (read: Russia Attacks Ukraine: ETF Areas Grabbing Investor Attention).

Amid rising geopolitical tensions, investors may want to remain invested in the equity world but at the same time seek protection from a downside. This could be easily achieved by investing in low-beta products like Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) , Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI - Free Report) , 6 Meridian Small Cap Equity ETF (SIXS - Free Report) , Pacer Trendpilot Fund of Funds ETF (TRND - Free Report) and JPMorgan Equity Premium Income ETF (JEPI - Free Report) . These funds could be intriguing options for investors amid the current market turbulence.

Though the stock market recouped some of the losses on Feb 25 on investors’ bargain hunting and a relief sanction from the United States, the Russia-Ukraine uncertainty persists. Additionally, the stock market was already under pressure due to the possible aggressive tightening by the Federal Reserve. The Fed is planning to raise interest rates for the first time in more than three years to combat the 40-year high inflation (read: Inflation Fear Overblown? 4 Retail Sector ETFs & Stocks Look Stout).

Higher interest rates indicate investors’ optimism in the economy. A still-improving economy backed by job growth and higher consumer confidence will likely bolster risk-on trade. While U.S. consumers lost confidence for the second consecutive month in February on worries over higher inflation, spending is on the rise. Retail sales also increased the most in 10 months in January, buoyed by higher online shopping. Production at factories increased moderately in January, but manufacturing activity fell to a 14-month low.

Further, the fourth-quarter earnings have shown continued strength and momentum, particularly on the revenue side. The aggregate total earnings are on track to reach a new all-time quarterly record, which would mark the third quarter in a row of record dollar earnings.

The S&P 500 remains in correction territory, down more than 10% from its Jan 3 peak, despite the rebound. After falling into a bear market territory, the Nasdaq Composite Index recovered somewhat but still sits about 16% away from its all-time high.

Why Low Beta?

Beta measures the price volatility of stocks relative to the overall market. It has a direct relationship to market movements. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile, while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.

That said, low-beta products exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market crumbles. Given lesser risks and lower returns, these are considered safe and resilient amid uncertainty. However, when markets soar, these low-beta funds experience lesser gains than the broader market counterparts and thus lag their peers.

All the above-mentioned funds offer broad exposure to a number of sectors and have AUM of more than $50 million, indicating their good tradability.

Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) – Beta: 0.33

Invesco S&P 500 Downside Hedged ETF is an actively managed fund and seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. Invesco S&P 500 Downside Hedged ETF tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework (read: 5 Long/Short ETFs to Defend Your Portfolio Against Volatility).

Invesco S&P 500 Downside Hedged ETF has accumulated $380.5 million in its asset base and charges 40 basis points (bps) in fees per year from its investors. Volume is good, exchanging 136,000 shares a day on average.

Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI - Free Report) – Beta: 0.44

Nationwide Nasdaq-100 Risk-Managed Income ETF targets high income with lower risk using a rules-based options trading strategy. It is designed for income-focused investors seeking to lower their exposure to market volatility and minimize the potential for losses during down markets.

With AUM of $868 million, Nationwide Nasdaq-100 Risk-Managed Income ETF charges 68 bps in annual fees and trades in an average daily volume of 525,000 shares.

6 Meridian Small Cap Equity ETF (SIXS - Free Report) - Beta: 0.56

6 Meridian Small Cap Equity ETF is an actively managed ETF that uses a quantitively-driven strategy emphasizing high-quality, small-cap stocks. Stocks are first screened to remove those that score poorly on financial and growth measures. Those stocks that pass the screen are then ranked on a stand-alone basis in relation to two factors – beta and value. The stocks that rank the highest for each factor are combined into one portfolio. Stocks that rank high in both factors are over-weighted. This strategy results in a basket of 87 stocks, charging investors 100 bps in annual fees.

The product has amassed $63.2 million in its asset base and trades in a paltry volume of 2,000 shares per day on average (read: Should You Invest in Small-Cap ETFs Amid Recent Market Recovery?).

Pacer Trendpilot Fund of Funds ETF (TRND - Free Report) – Beta: 0.57

Pacer Trendpilot Fund of Funds ETF follows the Pacer Trendpilot Fund of Funds Index, which seeks to implement a systematic trend-following strategy that directs exposure to 100% to the equity component; or 50% to the equity component and 50% to 3-month US Treasury bills; or 100% to 3-month US Treasury bills, depending on the relative performance of the equity Component and its 200-business day historical simple moving average.

Pacer Trendpilot Fund of Funds ETF has amassed $66.9 million and charges 77 bps in annual fees. It trades in volume of around 13,000 shares a day on average.

JPMorgan Equity Premium Income ETF (JEPI - Free Report) – Beta: 0.64

JPMorgan Equity Premium Income ETF seeks to provide current income while maintaining prospects for capital appreciation. It generates income through a combination of selling options and investing in U.S. large-cap stocks, seeking to deliver a monthly income stream from associated option premiums and stock dividends.

JPMorgan Equity Premium Income ETF has AUM of $6.6 billion and charges 35 bps in annual fees. The product trades in an average daily volume of 1.6 million shares.

Bottom Line

Investors should note that these products are not meant for generating outsized returns. Instead, these provide stability to the portfolio, protecting the initial investment. In particular, these products could be worthwhile for low risk-tolerant investors looking to safeguard their portfolio in the current market environment and seeking outperformance.