We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Low-volatility ETFs are in vogue as stock market volatility and uncertainty are not showing any signs of a slowdown. Persistently high inflation and an economic downturn caused by an aggressive Fed rate hike are weighing heavily on the stocks. Notably, all three major indices are in a bear market.
Against such a backdrop, investors seeking to remain invested in the equity world could consider low-volatility ETFs. These funds — iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV - Free Report) , SPDR Russell 1000 Low Volatility Focus ETF (ONEV - Free Report) and Fidelity Low Volatility Factor ETF (FDLO - Free Report) — could be solid options for investors in the current choppy market.
Low-volatility ETFs have the potential to outpace the broader market in bearish market conditions or 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 (read: Why Low Volatility ETFs are Beating the Market).
Market Trends
The Dow Jones Industrial Average is down 19.5%, while the S&P 500 has declined 24.7%. The tech-heavy Nasdaq Composite has underperformed, tumbling 33.4%. The rapid tightening of policy to combat inflation has sparked worries of a recession, leading to a sell-off in the stock markets.
The Federal Reserve raised interest rates by 75 bps for the fourth consecutive time, which pushed the benchmark rate to 3.0-3.25%, the highest level since 2008. The central bank also signaled additional large rate hikes. Per Reuters, money markets are giving it a 92% chance that the Fed will hike its benchmark rate another 0.75 percentage points when it meets in November.
An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans, which will likely cut consumer spending, hurting economic growth (read: Guide to Interest Rates Hike and ETFs).
The world's largest economy added 263,000 jobs in September, while the unemployment rate fell to 3.5% from 3.7% in August. The job growth marks a gradual slowdown from the August 315,000 gain and the lowest monthly increase since April 2021. Additionally, manufacturing activity grew at its slowest pace in almost two and a half years last month, according to the Institute for Supply Management.
Further, the latest round of selling in chip stocks in the wake of weak demand and U.S. controls on China sales added to the chaos. This pushed the Nasdaq and S&P 500 to fresh bear market lows on Oct 11.
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. It holds 172 stocks in its basket, with none accounting for more than 1.8% of the assets. Information technology takes the top spot at 21.9%, while healthcare, consumer staples and industrials round off the next three spots.
With AUM of $28.1 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 3.5 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 103 securities in its basket. Invesco S&P 500 Low Volatility ETF is widely spread across sectors, with utilities, consumer staples, healthcare and financials receiving double-digit exposure each (read: 5 Winning ETF Strategies for Q4).
Invesco S&P 500 Low Volatility ETF has amassed $9.8 billion in its asset base and trades in a solid volume of around 3.3 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.
SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV - Free Report)
SPDR SSGA US Large Cap Low Volatility Index ETF follows the SSGA US Large Cap Low Volatility Index, which utilizes a rules-based process that seeks to increase exposure to stocks that exhibit low volatility. It holds 146 stocks in its basket, with key holdings in industrials, financials, information technology, consumer discretionary and utilities.
With AUM of $563.7 million, SPDR SSGA US Large Cap Low Volatility Index ETF charges 12 bps in annual fees and trades in an average daily volume of about 21,000 shares.
SPDR Russell 1000 Low Volatility Focus ETF tracks the Russell 1000 Low Volatility Focused Factor Index and focuses on stocks that exhibit low volatility and offer downside protection. It holds 470 securities in its basket with AUM of $554.7 million and an expense ratio of 0.20%. Industrials, consumer discretionary, financials and technology are the top four sectors with double-digit exposure each.
SPDR Russell 1000 Low Volatility Focus ETF trades in an average daily volume of about 12,000 shares and has a Zacks ETF Rank #3.
Fidelity Low Volatility Factor ETF offers exposure to stocks with lower volatility than the broader market by tracking the Fidelity U.S. Low Volatility Factor Index. It holds 129 stocks in its basket. Fidelity Low Volatility Factor ETF has garnered $408.8 million in AUM and trades in an average daily volume of 57,000 shares. FDLO charges 29 bps in annual fees from investors.
Bottom Line
These products could be worthwhile for low-risk-tolerance investors and have the potential to outperform the broad market, especially if recession fears continue to dent sentiments.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Low Volatility ETFs to Play Market Volatility
Low-volatility ETFs are in vogue as stock market volatility and uncertainty are not showing any signs of a slowdown. Persistently high inflation and an economic downturn caused by an aggressive Fed rate hike are weighing heavily on the stocks. Notably, all three major indices are in a bear market.
Against such a backdrop, investors seeking to remain invested in the equity world could consider low-volatility ETFs. These funds — iShares MSCI USA Min Vol Factor ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) , SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV - Free Report) , SPDR Russell 1000 Low Volatility Focus ETF (ONEV - Free Report) and Fidelity Low Volatility Factor ETF (FDLO - Free Report) — could be solid options for investors in the current choppy market.
Low-volatility ETFs have the potential to outpace the broader market in bearish market conditions or 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 (read: Why Low Volatility ETFs are Beating the Market).
Market Trends
The Dow Jones Industrial Average is down 19.5%, while the S&P 500 has declined 24.7%. The tech-heavy Nasdaq Composite has underperformed, tumbling 33.4%. The rapid tightening of policy to combat inflation has sparked worries of a recession, leading to a sell-off in the stock markets.
The Federal Reserve raised interest rates by 75 bps for the fourth consecutive time, which pushed the benchmark rate to 3.0-3.25%, the highest level since 2008. The central bank also signaled additional large rate hikes. Per Reuters, money markets are giving it a 92% chance that the Fed will hike its benchmark rate another 0.75 percentage points when it meets in November.
An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans, which will likely cut consumer spending, hurting economic growth (read: Guide to Interest Rates Hike and ETFs).
The world's largest economy added 263,000 jobs in September, while the unemployment rate fell to 3.5% from 3.7% in August. The job growth marks a gradual slowdown from the August 315,000 gain and the lowest monthly increase since April 2021. Additionally, manufacturing activity grew at its slowest pace in almost two and a half years last month, according to the Institute for Supply Management.
Further, the latest round of selling in chip stocks in the wake of weak demand and U.S. controls on China sales added to the chaos. This pushed the Nasdaq and S&P 500 to fresh bear market lows on Oct 11.
ETFs Set to Shine
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. It holds 172 stocks in its basket, with none accounting for more than 1.8% of the assets. Information technology takes the top spot at 21.9%, while healthcare, consumer staples and industrials round off the next three spots.
With AUM of $28.1 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 3.5 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 103 securities in its basket. Invesco S&P 500 Low Volatility ETF is widely spread across sectors, with utilities, consumer staples, healthcare and financials receiving double-digit exposure each (read: 5 Winning ETF Strategies for Q4).
Invesco S&P 500 Low Volatility ETF has amassed $9.8 billion in its asset base and trades in a solid volume of around 3.3 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.
SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV - Free Report)
SPDR SSGA US Large Cap Low Volatility Index ETF follows the SSGA US Large Cap Low Volatility Index, which utilizes a rules-based process that seeks to increase exposure to stocks that exhibit low volatility. It holds 146 stocks in its basket, with key holdings in industrials, financials, information technology, consumer discretionary and utilities.
With AUM of $563.7 million, SPDR SSGA US Large Cap Low Volatility Index ETF charges 12 bps in annual fees and trades in an average daily volume of about 21,000 shares.
SPDR Russell 1000 Low Volatility Focus ETF (ONEV - Free Report)
SPDR Russell 1000 Low Volatility Focus ETF tracks the Russell 1000 Low Volatility Focused Factor Index and focuses on stocks that exhibit low volatility and offer downside protection. It holds 470 securities in its basket with AUM of $554.7 million and an expense ratio of 0.20%. Industrials, consumer discretionary, financials and technology are the top four sectors with double-digit exposure each.
SPDR Russell 1000 Low Volatility Focus ETF trades in an average daily volume of about 12,000 shares and has a Zacks ETF Rank #3.
Fidelity Low Volatility Factor ETF (FDLO - Free Report)
Fidelity Low Volatility Factor ETF offers exposure to stocks with lower volatility than the broader market by tracking the Fidelity U.S. Low Volatility Factor Index. It holds 129 stocks in its basket. Fidelity Low Volatility Factor ETF has garnered $408.8 million in AUM and trades in an average daily volume of 57,000 shares. FDLO charges 29 bps in annual fees from investors.
Bottom Line
These products could be worthwhile for low-risk-tolerance investors and have the potential to outperform the broad market, especially if recession fears continue to dent sentiments.