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Worried About Overvaluation? Seek Safety in Low-Volatility ETFs
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Key Takeaways
Rising inflation and rate fears are boosting demand for defensive, low-volatility ETFs.
ETFs like FDLO, USMV and SPLV can offer stability amid geopolitical uncertainty.
Dividend and value ETFs such as VYM, NOBL and RPV add income and downside cushion.
Tech trades are becoming too crowded. The tech-heavy Nasdaq-100 ETF Invesco QQQ Trust, Series 1 (QQQ - Free Report) surged more than 10% in May. While some tech earnings offered fresh cues to Wall Street for a sustained rally, the undercurrent of the global markets looks anything but steady.
There were renewed attacks in the Persian Gulf, as traders await further signs of whether the United States and Iran can reach a peace deal that would reopen the Strait of Hormuz. Apart from the Iran, concerns related to rich artificial intelligence (AI) valuations are also rife. Investors grew increasingly cautious amid mounting economic uncertainty and stretched market valuations.
Rising Stagflation Risks
Meanwhile, sticky inflation and rising rate fears are putting pressure on markets. A longer war-like scenario could push inflation significantly higher while slowing growth. Policymakers fear that sustained energy disruptions – especially via the Strait of Hormuz – may trigger stagflation, a worst-case scenario for the global economy.
The Federal Reserve’s preferred inflation measure accelerated to a three-year high in April, heightening concerns among policymakers and investors that price pressures are becoming more entrenched across the economy, as quoted on Yahoo Finance.
Fed Vice Chair Philip Jefferson said Wednesday evening that inflation should decline later this year as the effects of tariffs and energy-related shocks begin to fade. However, he acknowledged that risks to the inflation outlook remain skewed to the upside.
Fed Governor Lisa Cook said that she is “prepared to raise rates” if inflation fails to moderate in a “timely manner,” as quoted on Yahoo Finance. It means we may see higher rates over the medium term.
Markets Show Surprising Resilience: Will That Last?
Despite geopolitical tensions, global markets have remained stable, with equities rebounding strongly. However, policymakers caution that real economic impacts — especially supply disruptions — may emerge with a lag. Central banks face a highly uncertain environment, making it difficult to set clear policy paths.
Any Silver Lining?
The S&P 500 is forecast to rise to 8000 by the end of this year, up from an earlier projection of 7600, thanks to upgraded earnings estimates, according to Ben Snider, chief US equity strategist in Goldman Sachs Research.
The rally would mark a 6% gain (as of May 26). The team projects S&P 500 earnings per share (EPS) of $340 in 2026, a 24% increase from the prior year, and $385 in 2027, representing 13% growth.
Seek for Value & Stability
Against this backdrop of both opportunities and risks, we highlight a few low-volatility ETFs. These ETFs can offer value and stability to a portfolio.
The underlying Fidelity U.S. Low Volatility Factor Index reflects the performance of stocks of large and mid-capitalization U.S. companies with lower volatility than the broader market. The fund charges 15 bps in fees and yields 1.35% annually.
The underlying MSCI USA Minimum Volatility (USD) Index is composed of U.S. equities that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market. The fund charges 15 bps in fees and yields 1.53% annually.
The underlying S&P 500 Low Volatility Index consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months. The fund charges 25 bps in fees and yields 2.19% annually.
Vanguard High Dividend Yield Index Fund ETF (VYM - Free Report)
The underlying FTSE High Dividend Yield Index which is consists of common stocks of companies that pay dividends that generally are higher than average. The fund charges 4 bps in fees and yields 2.22% annually.
The underlying S&P 500 Dividend Aristocrats Index targets companies that are currently members of the S&P 500, have increased dividend payments each year for at least 25 years & meet certain market capitalization & liquidity requirements. The fund charges 35 bps in fees and yields about 4.21% annually.
The underlying S&P 500 Pure Value Index measures the performance of securities that exhibit strong value characteristics in the S&P 500 Index. The fund charges 35 bps in fees and yields 2.28% annually.
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Worried About Overvaluation? Seek Safety in Low-Volatility ETFs
Key Takeaways
Tech trades are becoming too crowded. The tech-heavy Nasdaq-100 ETF Invesco QQQ Trust, Series 1 (QQQ - Free Report) surged more than 10% in May. While some tech earnings offered fresh cues to Wall Street for a sustained rally, the undercurrent of the global markets looks anything but steady.
There were renewed attacks in the Persian Gulf, as traders await further signs of whether the United States and Iran can reach a peace deal that would reopen the Strait of Hormuz. Apart from the Iran, concerns related to rich artificial intelligence (AI) valuations are also rife. Investors grew increasingly cautious amid mounting economic uncertainty and stretched market valuations.
Rising Stagflation Risks
Meanwhile, sticky inflation and rising rate fears are putting pressure on markets. A longer war-like scenario could push inflation significantly higher while slowing growth. Policymakers fear that sustained energy disruptions – especially via the Strait of Hormuz – may trigger stagflation, a worst-case scenario for the global economy.
The Federal Reserve’s preferred inflation measure accelerated to a three-year high in April, heightening concerns among policymakers and investors that price pressures are becoming more entrenched across the economy, as quoted on Yahoo Finance.
Fed Vice Chair Philip Jefferson said Wednesday evening that inflation should decline later this year as the effects of tariffs and energy-related shocks begin to fade. However, he acknowledged that risks to the inflation outlook remain skewed to the upside.
Fed Governor Lisa Cook said that she is “prepared to raise rates” if inflation fails to moderate in a “timely manner,” as quoted on Yahoo Finance. It means we may see higher rates over the medium term.
Markets Show Surprising Resilience: Will That Last?
Despite geopolitical tensions, global markets have remained stable, with equities rebounding strongly. However, policymakers caution that real economic impacts — especially supply disruptions — may emerge with a lag. Central banks face a highly uncertain environment, making it difficult to set clear policy paths.
Any Silver Lining?
The S&P 500 is forecast to rise to 8000 by the end of this year, up from an earlier projection of 7600, thanks to upgraded earnings estimates, according to Ben Snider, chief US equity strategist in Goldman Sachs Research.
The rally would mark a 6% gain (as of May 26). The team projects S&P 500 earnings per share (EPS) of $340 in 2026, a 24% increase from the prior year, and $385 in 2027, representing 13% growth.
Seek for Value & Stability
Against this backdrop of both opportunities and risks, we highlight a few low-volatility ETFs. These ETFs can offer value and stability to a portfolio.
Fidelity Low Volatility Factor ETF (FDLO - Free Report)
The underlying Fidelity U.S. Low Volatility Factor Index reflects the performance of stocks of large and mid-capitalization U.S. companies with lower volatility than the broader market. The fund charges 15 bps in fees and yields 1.35% annually.
iShares MSCI USA Min Vol Factor ETF (USMV - Free Report)
The underlying MSCI USA Minimum Volatility (USD) Index is composed of U.S. equities that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market. The fund charges 15 bps in fees and yields 1.53% annually.
Invesco S&P 500 Low Volatility ETF (SPLV - Free Report)
The underlying S&P 500 Low Volatility Index consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months. The fund charges 25 bps in fees and yields 2.19% annually.
Vanguard High Dividend Yield Index Fund ETF (VYM - Free Report)
The underlying FTSE High Dividend Yield Index which is consists of common stocks of companies that pay dividends that generally are higher than average. The fund charges 4 bps in fees and yields 2.22% annually.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL - Free Report)
The underlying S&P 500 Dividend Aristocrats Index targets companies that are currently members of the S&P 500, have increased dividend payments each year for at least 25 years & meet certain market capitalization & liquidity requirements. The fund charges 35 bps in fees and yields about 4.21% annually.
Invesco S&P 500 Pure Value ETF (RPV - Free Report)
The underlying S&P 500 Pure Value Index measures the performance of securities that exhibit strong value characteristics in the S&P 500 Index. The fund charges 35 bps in fees and yields 2.28% annually.