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Low-Volatility ETFs Gain Attention as Market Uncertainty Grows
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Key Takeaways
Rising AI concerns and technology stock losses are adding to broader market uncertainty.
Low-volatility ETFs focus on stocks with historically smaller price swings than the broader market.
Low-volatility ETFs like SPLV, SPHD and EFAV may help investors manage portfolio risk amid the tech sell-off.
This year has proved challenging for investors, as persistent economic and geopolitical risks continue to test market resilience. Market sentiment has increasingly been shaped by changing perceptions of the AI trade and concerns over the sustainability of its long-term growth.
Once a key pillar of market resilience, the AI trade has increasingly become a source of concern amid questions about valuations, financing needs and the durability of AI-driven gains. Thursday’s tech sell-off underscored these concerns, with technology stocks retreating as investors weighed the implications of rising corporate borrowing and higher interest rates for AI-related and other tech companies.
The broader market also came under pressure, with the S&P 500 falling 1.21% on Thursday. The decline extended the index’s losses to 1.06% over the past five trading sessions and 1.38% over the past month, underscoring the challenges facing investors amid growing uncertainty.
Market Volatility Picks Up
The CBOE Volatility Index (VIX), which reflects market expectations of near-term volatility, rose about 3.68% in the last trading session, taking the index up around 23.2% over the past five trading sessions and about 39.3% over the past month.
The rise in the volatility index highlights persistent market uncertainty and a growing risk-off sentiment among investors. With AI-related concerns rising alongside broader economic and geopolitical uncertainties, market volatility could remain elevated in the near term, leaving investors vulnerable to further turbulence.
Nasdaq Tumbles as Tech Stocks Retreat
The tech-heavy Nasdaq Composite fell about 2.6% on Thursday, extending its losses to roughly 2.42% over the past five trading sessions and 4.24% over the past month. Growing doubts about the sustainability of the AI-driven rally have been dampening investor sentiment.
Meanwhile, semiconductor stocks, which have played a significant role in the market's rally, have come under significant pressure this month as investor sentiment toward the sector appears to weaken. The Philadelphia Semiconductor Index (SOX) fell 6.72% on Thursday, extending its losses to roughly 13.02% over the past month and 11.53% over the past three months.
Oil Surge Fuels Inflation Fears and Fed Rate Hike Uncertainty
Heightened geopolitical risks have weighed on investor sentiment throughout much of the year, contributing to oil price volatility. Escalating hostilities involving Saudi Arabia and Iran-backed Houthi forces have kept the geopolitical situation in the Middle East complex.
The U.S. benchmark, West Texas Intermediate (WTI) crude, crossed the $100 per barrel mark. Meanwhile, the global benchmark, Brent crude, crossed the $114 per barrel mark.
With little indication that tensions will ease in the near term, prolonged instability could keep fuel prices elevated, adding to inflationary pressures. Beyond higher energy costs, substantial AI-related investments could also fuel inflation, further complicating the Fed’s policy outlook. With inflation remaining a key concern, uncertainty over the timing and likelihood of potential rate hikes continues to weigh on investor confidence.
Why Low-Volatility ETFs
In the current environment, adopting a more cautious investment approach may be prudent as investors seek to manage volatility and add stability to their portfolios. When it comes to risk management, anticipating potential threats is far more effective than reacting after losses materialize.
As economic and geopolitical risks rise and AI-related concerns weigh on market sentiment, low-volatility ETFs may appeal to investors who want to maintain equity exposure while potentially reducing downside risk.
Low-volatility ETFs seek to provide a smoother investment experience by focusing on stocks that historically exhibit lower levels of market volatility and more stable price movements than the broader market.
These funds commonly favor defensive sectors, including healthcare, utilities and consumer staples, where earnings and demand tend to remain more stable during uncertain periods. As a result, they may appeal to investors seeking to maintain market exposure while potentially limiting downside risk.
Low-Volatility ETFs to Help Steady Your Portfolio
Below, we have highlighted a few low-volatility ETFs that investors may want to consider amid ongoing market uncertainty.
Invesco S&P 500 Low Volatility ETF seeks to track the performance of S&P 500 Low Volatility Index with a basket of 104 securities. The fund has amassed an asset base of $7.25 billion and charges an annual fee of 0.25%. It also has a dividend yield of 2.17%.
SPLV has double-digit allocations to utilities, financials, real estate and industrials, with utilities accounting for the largest share at 26.65%. The fund has a one-month average trading volume of about 1.86 million shares.
Invesco S&P 500 Low Volatility ETF has gained 7.1% over the past month and 6.7% year to date.
Invesco S&P 500 High Dividend Low Volatility ETF seeks to track the performance of S&P 500 Low Volatility High Dividend Index with a basket of 54 securities. The fund has gathered an asset base of $3.31 billion and charges an annual fee of 0.30%. It also has a dividend yield of 4.8%.
SPHD has double-digit allocations to real estate, consumer staples, utilities, financials and energy, with real estate accounting for the largest share at 19.79%. The fund has a one-month average trading volume of about 1.29 million shares.
Invesco S&P 500 High Dividend Low Volatility ETF has gained 5.8% over the past month and 7.8% year to date.
State Street SPDR US Large Cap Low Volatility Index ETF (LGLV - Free Report)
State Street SPDR US Large Cap Low Volatility Index ETF seeks to track the performance of State Street US Large Cap Low Volatility Index with a basket of 171 securities. The fund has gathered an asset base of $1.17 billion and charges an annual fee of 0.12%. It has a dividend yield of 2.06%.
LGLV has double-digit allocations to industrials, real estate, financials and utilities, with industrials accounting for the largest share at 21.49%. The fund has a one-month average trading volume of about 43,000 shares.
State Street SPDR US Large Cap Low Volatility Index ETF has gained 6.6% over the past month and 7.1% year to date.
iShares MSCI EAFE Min Vol Factor ETF seeks to track the performance of MSCI EAFE Minimum Volatility (USD) Index with a basket of 265 securities. The fund has gathered an asset base of $5.46 billion and charges an annual fee of 0.20%. It has a dividend yield of 2.97%.
EFAV has double-digit allocations to financials, industrials, consumer staples and health care, with financials accounting for the largest share at 20.11%. Geographically, the fund has the largest exposure to Japan (28.67%), followed by Switzerland (10.50%) and the United Kingdom (9.74%).
iShares MSCI EAFE Min Vol Factor ETF has a one-month average trading volume of about 597,000 shares. The fund has gained 4.3% over the past month and 11.5% year to date.
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Low-Volatility ETFs Gain Attention as Market Uncertainty Grows
Key Takeaways
This year has proved challenging for investors, as persistent economic and geopolitical risks continue to test market resilience. Market sentiment has increasingly been shaped by changing perceptions of the AI trade and concerns over the sustainability of its long-term growth.
Once a key pillar of market resilience, the AI trade has increasingly become a source of concern amid questions about valuations, financing needs and the durability of AI-driven gains. Thursday’s tech sell-off underscored these concerns, with technology stocks retreating as investors weighed the implications of rising corporate borrowing and higher interest rates for AI-related and other tech companies.
The broader market also came under pressure, with the S&P 500 falling 1.21% on Thursday. The decline extended the index’s losses to 1.06% over the past five trading sessions and 1.38% over the past month, underscoring the challenges facing investors amid growing uncertainty.
Market Volatility Picks Up
The CBOE Volatility Index (VIX), which reflects market expectations of near-term volatility, rose about 3.68% in the last trading session, taking the index up around 23.2% over the past five trading sessions and about 39.3% over the past month.
The rise in the volatility index highlights persistent market uncertainty and a growing risk-off sentiment among investors. With AI-related concerns rising alongside broader economic and geopolitical uncertainties, market volatility could remain elevated in the near term, leaving investors vulnerable to further turbulence.
Nasdaq Tumbles as Tech Stocks Retreat
The tech-heavy Nasdaq Composite fell about 2.6% on Thursday, extending its losses to roughly 2.42% over the past five trading sessions and 4.24% over the past month. Growing doubts about the sustainability of the AI-driven rally have been dampening investor sentiment.
Meanwhile, semiconductor stocks, which have played a significant role in the market's rally, have come under significant pressure this month as investor sentiment toward the sector appears to weaken. The Philadelphia Semiconductor Index (SOX) fell 6.72% on Thursday, extending its losses to roughly 13.02% over the past month and 11.53% over the past three months.
Oil Surge Fuels Inflation Fears and Fed Rate Hike Uncertainty
Heightened geopolitical risks have weighed on investor sentiment throughout much of the year, contributing to oil price volatility. Escalating hostilities involving Saudi Arabia and Iran-backed Houthi forces have kept the geopolitical situation in the Middle East complex.
The U.S. benchmark, West Texas Intermediate (WTI) crude, crossed the $100 per barrel mark. Meanwhile, the global benchmark, Brent crude, crossed the $114 per barrel mark.
With little indication that tensions will ease in the near term, prolonged instability could keep fuel prices elevated, adding to inflationary pressures. Beyond higher energy costs, substantial AI-related investments could also fuel inflation, further complicating the Fed’s policy outlook. With inflation remaining a key concern, uncertainty over the timing and likelihood of potential rate hikes continues to weigh on investor confidence.
Why Low-Volatility ETFs
In the current environment, adopting a more cautious investment approach may be prudent as investors seek to manage volatility and add stability to their portfolios. When it comes to risk management, anticipating potential threats is far more effective than reacting after losses materialize.
As economic and geopolitical risks rise and AI-related concerns weigh on market sentiment, low-volatility ETFs may appeal to investors who want to maintain equity exposure while potentially reducing downside risk.
Low-volatility ETFs seek to provide a smoother investment experience by focusing on stocks that historically exhibit lower levels of market volatility and more stable price movements than the broader market.
These funds commonly favor defensive sectors, including healthcare, utilities and consumer staples, where earnings and demand tend to remain more stable during uncertain periods. As a result, they may appeal to investors seeking to maintain market exposure while potentially limiting downside risk.
Low-Volatility ETFs to Help Steady Your Portfolio
Below, we have highlighted a few low-volatility ETFs that investors may want to consider amid ongoing market uncertainty.
Invesco S&P 500 Low Volatility ETF (SPLV - Free Report)
Invesco S&P 500 Low Volatility ETF seeks to track the performance of S&P 500 Low Volatility Index with a basket of 104 securities. The fund has amassed an asset base of $7.25 billion and charges an annual fee of 0.25%. It also has a dividend yield of 2.17%.
SPLV has double-digit allocations to utilities, financials, real estate and industrials, with utilities accounting for the largest share at 26.65%. The fund has a one-month average trading volume of about 1.86 million shares.
Invesco S&P 500 Low Volatility ETF has gained 7.1% over the past month and 6.7% year to date.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report)
Invesco S&P 500 High Dividend Low Volatility ETF seeks to track the performance of S&P 500 Low Volatility High Dividend Index with a basket of 54 securities. The fund has gathered an asset base of $3.31 billion and charges an annual fee of 0.30%. It also has a dividend yield of 4.8%.
SPHD has double-digit allocations to real estate, consumer staples, utilities, financials and energy, with real estate accounting for the largest share at 19.79%. The fund has a one-month average trading volume of about 1.29 million shares.
Invesco S&P 500 High Dividend Low Volatility ETF has gained 5.8% over the past month and 7.8% year to date.
State Street SPDR US Large Cap Low Volatility Index ETF (LGLV - Free Report)
State Street SPDR US Large Cap Low Volatility Index ETF seeks to track the performance of State Street US Large Cap Low Volatility Index with a basket of 171 securities. The fund has gathered an asset base of $1.17 billion and charges an annual fee of 0.12%. It has a dividend yield of 2.06%.
LGLV has double-digit allocations to industrials, real estate, financials and utilities, with industrials accounting for the largest share at 21.49%. The fund has a one-month average trading volume of about 43,000 shares.
State Street SPDR US Large Cap Low Volatility Index ETF has gained 6.6% over the past month and 7.1% year to date.
iShares MSCI EAFE Min Vol Factor ETF (EFAV - Free Report)
iShares MSCI EAFE Min Vol Factor ETF seeks to track the performance of MSCI EAFE Minimum Volatility (USD) Index with a basket of 265 securities. The fund has gathered an asset base of $5.46 billion and charges an annual fee of 0.20%. It has a dividend yield of 2.97%.
EFAV has double-digit allocations to financials, industrials, consumer staples and health care, with financials accounting for the largest share at 20.11%. Geographically, the fund has the largest exposure to Japan (28.67%), followed by Switzerland (10.50%) and the United Kingdom (9.74%).
iShares MSCI EAFE Min Vol Factor ETF has a one-month average trading volume of about 597,000 shares. The fund has gained 4.3% over the past month and 11.5% year to date.