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Low Volatility ETFs to Play Stock Market Volatility
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As the stock market is playing tug-of-war between the bulls and bears, low-volatility ETFs have gained traction. The next Fed’s policy move, recession fears, and mixed economic data are the major factors moving the markets up an down.
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 conditions or 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: Forget Recession Fears, Invest in These Safe ETFs).
Macro Trends
Worries about a recession have intensified with the latest batch of data pointing to a slowdown in the economy. U.S. manufacturing activity slumped to the lowest level in nearly three years in March. The growth in U.S. service sector activity also slowed more than expected while a measure of prices paid by services businesses fell to the lowest in nearly three years. Retail sales also fell more than expected in March as consumers cut back on purchases of motor vehicles and other big ticket items.
The slowdown in the world’s largest economic activities could push the global economy into recession. The International Monetary Fund warned that the risk of a recession has grown for advanced economies in the wake of bank failures in the United States and Europe and slashed its outlook for global growth this year.
Despite the weak data and ebbing bank fears, the Fed is expected to hike interest rates by another 25 basis points at next month's policy meeting. On the other hand, cooling inflation and a loosening labor market fueled optimism that the Fed could be nearing the end of its aggressive interest rate-hike cycle (read: U.S. Inflation Cools: 3 ETF Areas to Soar).
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 164 stocks in its basket, with none accounting for more than 1.6% of the assets. Healthcare takes the top spot at 20.2%, while information technology, consumer staples and financials round off the next three spots.
With AUM of $29.2 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 3 million shares. USMV has a Zacks ETF Rank #2 (Buy) 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 102 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.
Invesco S&P 500 Low Volatility ETF has amassed $10 billion in its asset base and trades in a solid volume of around 3 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Quality ETFs to Buy for Market-Beating Returns Amid Turmoil).
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 151 stocks in its basket, with key holdings in financials, industrials, real estate and utilities.
With AUM of $676.9 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 18,000 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 474 securities in its basket with AUM of $586.7 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 8,000 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 131 stocks in its basket. Fidelity Low Volatility Factor ETF has garnered $499.2 million in AUM and trades in an average daily volume of 44,000 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 and Fed’s policy continue to dent sentiments.
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Low Volatility ETFs to Play Stock Market Volatility
As the stock market is playing tug-of-war between the bulls and bears, low-volatility ETFs have gained traction. The next Fed’s policy move, recession fears, and mixed economic data are the major factors moving the markets up an down.
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 conditions or 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: Forget Recession Fears, Invest in These Safe ETFs).
Macro Trends
Worries about a recession have intensified with the latest batch of data pointing to a slowdown in the economy. U.S. manufacturing activity slumped to the lowest level in nearly three years in March. The growth in U.S. service sector activity also slowed more than expected while a measure of prices paid by services businesses fell to the lowest in nearly three years. Retail sales also fell more than expected in March as consumers cut back on purchases of motor vehicles and other big ticket items.
The slowdown in the world’s largest economic activities could push the global economy into recession. The International Monetary Fund warned that the risk of a recession has grown for advanced economies in the wake of bank failures in the United States and Europe and slashed its outlook for global growth this year.
Despite the weak data and ebbing bank fears, the Fed is expected to hike interest rates by another 25 basis points at next month's policy meeting. On the other hand, cooling inflation and a loosening labor market fueled optimism that the Fed could be nearing the end of its aggressive interest rate-hike cycle (read: U.S. Inflation Cools: 3 ETF Areas to Soar).
ETFs to Consider
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 164 stocks in its basket, with none accounting for more than 1.6% of the assets. Healthcare takes the top spot at 20.2%, while information technology, consumer staples and financials round off the next three spots.
With AUM of $29.2 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 3 million shares. USMV has a Zacks ETF Rank #2 (Buy) 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 102 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.
Invesco S&P 500 Low Volatility ETF has amassed $10 billion in its asset base and trades in a solid volume of around 3 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Quality ETFs to Buy for Market-Beating Returns Amid Turmoil).
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 151 stocks in its basket, with key holdings in financials, industrials, real estate and utilities.
With AUM of $676.9 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 18,000 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 474 securities in its basket with AUM of $586.7 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 8,000 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 131 stocks in its basket. Fidelity Low Volatility Factor ETF has garnered $499.2 million in AUM and trades in an average daily volume of 44,000 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 and Fed’s policy continue to dent sentiments.