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Despite the recent rebound, the volatility level remained high over the past one-month period led by concerns including uncertainty in the post-Brexit period and worries over the path of rate hikes. The fear-gauge CBOE Volatility Index (VIX) surged 8.4% in trailing one-month period, indicating the prevalence of a high level of volatility in financial markets. Popular low beta ETFs having a favorable Zacks Rank may prove ideal additions to one’s portfolio when it comes shielding the same from volatile market conditions.
Major Factors Behind Volatility
Post-Brexit Concerns
Major global markets suffered heavily after the United Kingdom ultimately voted in favor of leaving the European Union when polls results were tilted toward a Bremain verdict. The surprising referendum results pulled the global financial sector downward, which in turn negatively impacted the domestic financial domain. VIX jumped 49.3% to settle at 25.76 on the day of the referendum, witnessing its highest percentage rise since Aug 8, 2011. The Dow posted its eighth biggest point decline in history. Both the blue-chip index and the S&P 500 registered their largest percentage fall since Aug 2015 and the Nasdaq posted the worst percentage decline since Aug 2011 (read: UK Votes for Brexit: ETFs Winners & Losers).
Weak Jobs Report
Report released on June showed that, job growth of only 38,000 in May was the lowest in over five years and below the downwardly revised 123,000 in the prior month and far below the market estimate of 164,000. The labor force participation rate declined to 62.6%, as 458,000 individuals quit jobs or gave up jobs searches. The unemployment rate was 4.7% in May, reaching its lowest level since Nov 2007. Though average hourly earnings gained 0.2%, it came in lower than April’s 0.4% increase (read: Dull U.S. Job Data Brighten These ETFs).
Rate Hike Uncertainty
Concerns regarding Brexit and weak jobs report led the Federal Open Market Committee (FOMC) to keep federal funds rate unchanged in June. The FOMC stated: “The pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished.” Also, Fed chairwoman Janet Yellen said “Brexit” is likely to have "consequences for economic and financial conditions in global financial markets."
Moreover, the Fed’s decision to stick to its 2016 rate path also appears to be on shaky ground with just six of the 17 policymakers forecasting one rate hike this year, compared to only one Fed official take a similar view in March. Also, the central bank expects the key inflation rate to remain “low in the near term." The Fed also forecast the economy to grow at a slower pace than earlier anticipated (read: Red-Hot Income ETFs Post Fed Meet).
Why Low-Beta ETFs?
Beta is considered as one of the popular measures of risk in the investing world. Beta gives us a better understanding of volatility, or systematic risk, of a portfolio in comparison to the broader market. Also known as beta coefficient, it measures the volatility of an ETF in contrast to broader markets. So, it measures the extent to which a fund’s return may be affected or how much the price fluctuates owing to market conditions.
While ETFs with beta between 0 and 1 are expected to witness less volatility than the broader markets, ETFs with beta greater than 1 denote that the ETFsmay witness higher volatility compared to the broader markets.
3 Low-Beta ETFs to Buy
In order to protect a portfolio from being affected by a volatile environment, one may consider investing in favorably ranked ETFs having beta between 0 and 1. This is why, we have highlighted three popular low-beta ETFs that have either a Zacks ETF Rank #1 (Strong Buy) or a Zacks ETF Rank #2 (Buy).
This fund tracks the Morningstar Dividend Yield Focus Index. In total, it holds 75 securities in its basket with 58.5% of its assets invested in the top 10 holdings. Energy occupies the top position from a sector look at 20.5% while Consumer Staples takes the next position with 20% of its assets. This Zacks ETF Rank #1 product has a Medium risk outlook and beta of 0.74. The fund is quite popular in its space with $6 billion AUM and an impressive daily average volume of more than 500,000 shares. HDV charges only 12 bps in annual fees, significantly lower than category average of 0.42%. The ETF gained nearly 2.3% and 12% over the past one-month and year-to-date periods.
iShares Edge MSCI Minimum Volatility USA (USMV - Free Report)
This fund follows the MSCI USA Minimum Volatility (USD) Index. It maintains a well-diversified portfolio of 176 securities with only 15% of its assets invested in the top 10 holdings. Financials occupies the top position from a sector look at 19.8% while Health Care takes the next position with 19.4% of its assets. This Zacks ETF Rank #2 product has a Medium risk outlook and beta of 0.69. The fund is the second most popular ETF in its space with $14.7 billion AUM and solid daily average volume of more than 4 million shares. USMV charges only 15 bps in annual fees, significantly lower than category average of 0.50%. The ETF gained nearly 3.5% and 10.7% over the past one-month and year-to-date periods.
This fund tracks the MSCI US REIT Index. In total, it holds 151 securities in its basket with 35.6% of its assets invested in the top 10 holdings. Retail REITs occupy the top position from a sector look at 23.9% while Specialized REITs take the next position with 17.5% of its assets. This Zacks ETF Rank #2 product has a Medium risk outlook and beta of 0.80. The fund is the most popular ETF in its space with $34.4 billion AUM and solid daily average volume of more than 4 million shares. VNQ charges only 12 bps in annual fees, significantly lower than category average of 0.45%. The ETF gained nearly 5.4% and 11.3% over the past one-month and year-to-date periods.
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3 Low-Beta ETFs to Buy in July
Despite the recent rebound, the volatility level remained high over the past one-month period led by concerns including uncertainty in the post-Brexit period and worries over the path of rate hikes. The fear-gauge CBOE Volatility Index (VIX) surged 8.4% in trailing one-month period, indicating the prevalence of a high level of volatility in financial markets. Popular low beta ETFs having a favorable Zacks Rank may prove ideal additions to one’s portfolio when it comes shielding the same from volatile market conditions.
Major Factors Behind Volatility
Post-Brexit Concerns
Major global markets suffered heavily after the United Kingdom ultimately voted in favor of leaving the European Union when polls results were tilted toward a Bremain verdict. The surprising referendum results pulled the global financial sector downward, which in turn negatively impacted the domestic financial domain. VIX jumped 49.3% to settle at 25.76 on the day of the referendum, witnessing its highest percentage rise since Aug 8, 2011. The Dow posted its eighth biggest point decline in history. Both the blue-chip index and the S&P 500 registered their largest percentage fall since Aug 2015 and the Nasdaq posted the worst percentage decline since Aug 2011 (read: UK Votes for Brexit: ETFs Winners & Losers).
Weak Jobs Report
Report released on June showed that, job growth of only 38,000 in May was the lowest in over five years and below the downwardly revised 123,000 in the prior month and far below the market estimate of 164,000. The labor force participation rate declined to 62.6%, as 458,000 individuals quit jobs or gave up jobs searches. The unemployment rate was 4.7% in May, reaching its lowest level since Nov 2007. Though average hourly earnings gained 0.2%, it came in lower than April’s 0.4% increase (read: Dull U.S. Job Data Brighten These ETFs).
Rate Hike Uncertainty
Concerns regarding Brexit and weak jobs report led the Federal Open Market Committee (FOMC) to keep federal funds rate unchanged in June. The FOMC stated: “The pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished.” Also, Fed chairwoman Janet Yellen said “Brexit” is likely to have "consequences for economic and financial conditions in global financial markets."
Moreover, the Fed’s decision to stick to its 2016 rate path also appears to be on shaky ground with just six of the 17 policymakers forecasting one rate hike this year, compared to only one Fed official take a similar view in March. Also, the central bank expects the key inflation rate to remain “low in the near term." The Fed also forecast the economy to grow at a slower pace than earlier anticipated (read: Red-Hot Income ETFs Post Fed Meet).
Why Low-Beta ETFs?
Beta is considered as one of the popular measures of risk in the investing world. Beta gives us a better understanding of volatility, or systematic risk, of a portfolio in comparison to the broader market. Also known as beta coefficient, it measures the volatility of an ETF in contrast to broader markets. So, it measures the extent to which a fund’s return may be affected or how much the price fluctuates owing to market conditions.
While ETFs with beta between 0 and 1 are expected to witness less volatility than the broader markets, ETFs with beta greater than 1 denote that the ETFsmay witness higher volatility compared to the broader markets.
3 Low-Beta ETFs to Buy
In order to protect a portfolio from being affected by a volatile environment, one may consider investing in favorably ranked ETFs having beta between 0 and 1. This is why, we have highlighted three popular low-beta ETFs that have either a Zacks ETF Rank #1 (Strong Buy) or a Zacks ETF Rank #2 (Buy).
iShares Core High Dividend (HDV - Free Report)
This fund tracks the Morningstar Dividend Yield Focus Index. In total, it holds 75 securities in its basket with 58.5% of its assets invested in the top 10 holdings. Energy occupies the top position from a sector look at 20.5% while Consumer Staples takes the next position with 20% of its assets. This Zacks ETF Rank #1 product has a Medium risk outlook and beta of 0.74. The fund is quite popular in its space with $6 billion AUM and an impressive daily average volume of more than 500,000 shares. HDV charges only 12 bps in annual fees, significantly lower than category average of 0.42%. The ETF gained nearly 2.3% and 12% over the past one-month and year-to-date periods.
iShares Edge MSCI Minimum Volatility USA (USMV - Free Report)
This fund follows the MSCI USA Minimum Volatility (USD) Index. It maintains a well-diversified portfolio of 176 securities with only 15% of its assets invested in the top 10 holdings. Financials occupies the top position from a sector look at 19.8% while Health Care takes the next position with 19.4% of its assets. This Zacks ETF Rank #2 product has a Medium risk outlook and beta of 0.69. The fund is the second most popular ETF in its space with $14.7 billion AUM and solid daily average volume of more than 4 million shares. USMV charges only 15 bps in annual fees, significantly lower than category average of 0.50%. The ETF gained nearly 3.5% and 10.7% over the past one-month and year-to-date periods.
Vanguard REIT ETF (VNQ - Free Report)
This fund tracks the MSCI US REIT Index. In total, it holds 151 securities in its basket with 35.6% of its assets invested in the top 10 holdings. Retail REITs occupy the top position from a sector look at 23.9% while Specialized REITs take the next position with 17.5% of its assets. This Zacks ETF Rank #2 product has a Medium risk outlook and beta of 0.80. The fund is the most popular ETF in its space with $34.4 billion AUM and solid daily average volume of more than 4 million shares. VNQ charges only 12 bps in annual fees, significantly lower than category average of 0.45%. The ETF gained nearly 5.4% and 11.3% over the past one-month and year-to-date periods.
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