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U.S. markets may be in great shape right now, thanks to dovish Fed comments, but this has not removed the spotlight from low-volatility products. These apparently safe products, which normally do not surge in a bull market but offer protection in troubled times, are steady this year.
SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV - Free Report) is up 21.4% in 2019 versus 17.5% gains in the S&P 500. The fund LGLV has mainly breezed past (up 9.4%) the S&P 500 (up 5.3%) in the trade-tension-ridden second quarter.
Why Low-Volatility Products Are Set to Rule
Of late, geopolitical tensions between Iran and the United States flared up after officials from both countries said Iran downed a U.S. military drone near the Strait of Hormuz. In any case, both parties have been at loggerheads for about a year (read: Iran Downs U.S. Drone: Sector ETFs & Stocks to Gain).
Most recently, President Donald Trump announced that the United States will levy "major" incremental sanctions on Iran in order to prevent it from procuring nuclear weapons. It followed the announcement by Iran that it would surpass internationally agreed limits on its nuclear program.
U.S.-China relations are also sour. Just before the G-20 meet where Trump and China’s premiere Xi are supposed to talk about trade, five additional Chinese companies are barred from purchasing U.S.-made components. Analysts believe that chances of a more comprehensive deal appear far-off.
Investors should also note that stocks are near record highs amid dovish Fed comments. So, if anything negative comes out of the upcoming U.S.-China meeting and U.S.-Iran relations, global equities may skid due to overvaluation and low-volatility, defensive plays may win again in the second half of the year.
Investors should also note that the Fed has indicated policy easing this year. Traders now see at least 100% probability of minimum 25-bps rate cut next month, according to the CME FedWatch tool. According to Goldman Sachs, low-volatility stocks have historically delivered great performance in the 12 months following the beginning of the Fed rate cut cycles.
Stock & ETF Bets
Against this backdrop, below we highlight a few low-volatility ETFs and stocks that could be great buys ahead. The stock picks are Goldman’s favorites also.
Kimberly-Clark Corporation and its well-known global brands are an indispensable part of life in more than 175 countries. The stock has a Zacks Rank #2 (Buy).
Honeywell is a Fortune 100 software-industrial company that delivers industry specific solutions including aerospace and automotive products and services; control technologies for buildings, homes, and industry; and performance materials globally. The stock has a Zacks Rank #2.
Chevron is one of the world's leading integrated energy companies. The stock has a Zacks Rank #2 and yields 3.81% annually.
ETF Picks
Franklin Liberty U.S. Low Volatility ETF (FLLV - Free Report)
The actively-managed fund seeks capital appreciation with an emphasis on lower volatility than the broader equity market, as measured by the Russell 1000 Index. No stock accounts for more than 1.53% of the portfolio. Technology, healthcare, financials and consumer discretionary have a double-digit weight in the fund. It charges 50 bps.
SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV - Free Report)
The underlying index of the fund is designed to track the performance of U.S. large capitalization companies that exhibit low volatility. No stock makes up about 1.93% of the portfolio. Financials, technology and industrials have a double-digit weight in the fund. The fund charges 12 bps in fees.
The underlying S&P 500 Low Volatility Index consists of 100 stocks from the S&P 500 Index with the lowest-realized volatility over the past 12 months. Utilities, financials and real estate have a double-digit weight in the fund. No stock makes up about 1.22% of the fund, which charges 25 bps in fees.
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3 Low-Volatility Stocks & ETFs to Buy
U.S. markets may be in great shape right now, thanks to dovish Fed comments, but this has not removed the spotlight from low-volatility products. These apparently safe products, which normally do not surge in a bull market but offer protection in troubled times, are steady this year.
SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV - Free Report) is up 21.4% in 2019 versus 17.5% gains in the S&P 500. The fund LGLV has mainly breezed past (up 9.4%) the S&P 500 (up 5.3%) in the trade-tension-ridden second quarter.
Why Low-Volatility Products Are Set to Rule
Of late, geopolitical tensions between Iran and the United States flared up after officials from both countries said Iran downed a U.S. military drone near the Strait of Hormuz. In any case, both parties have been at loggerheads for about a year (read: Iran Downs U.S. Drone: Sector ETFs & Stocks to Gain).
Most recently, President Donald Trump announced that the United States will levy "major" incremental sanctions on Iran in order to prevent it from procuring nuclear weapons. It followed the announcement by Iran that it would surpass internationally agreed limits on its nuclear program.
U.S.-China relations are also sour. Just before the G-20 meet where Trump and China’s premiere Xi are supposed to talk about trade, five additional Chinese companies are barred from purchasing U.S.-made components. Analysts believe that chances of a more comprehensive deal appear far-off.
Investors should also note that stocks are near record highs amid dovish Fed comments. So, if anything negative comes out of the upcoming U.S.-China meeting and U.S.-Iran relations, global equities may skid due to overvaluation and low-volatility, defensive plays may win again in the second half of the year.
Investors should also note that the Fed has indicated policy easing this year. Traders now see at least 100% probability of minimum 25-bps rate cut next month, according to the CME FedWatch tool. According to Goldman Sachs, low-volatility stocks have historically delivered great performance in the 12 months following the beginning of the Fed rate cut cycles.
Stock & ETF Bets
Against this backdrop, below we highlight a few low-volatility ETFs and stocks that could be great buys ahead. The stock picks are Goldman’s favorites also.
Stock Picks
Kimberly-Clark Corporation (KMB - Free Report)
Kimberly-Clark Corporation and its well-known global brands are an indispensable part of life in more than 175 countries. The stock has a Zacks Rank #2 (Buy).
Honeywell International Inc. (HON - Free Report)
Honeywell is a Fortune 100 software-industrial company that delivers industry specific solutions including aerospace and automotive products and services; control technologies for buildings, homes, and industry; and performance materials globally. The stock has a Zacks Rank #2.
Chevron Corporation (CVX - Free Report)
Chevron is one of the world's leading integrated energy companies. The stock has a Zacks Rank #2 and yields 3.81% annually.
ETF Picks
Franklin Liberty U.S. Low Volatility ETF (FLLV - Free Report)
The actively-managed fund seeks capital appreciation with an emphasis on lower volatility than the broader equity market, as measured by the Russell 1000 Index. No stock accounts for more than 1.53% of the portfolio. Technology, healthcare, financials and consumer discretionary have a double-digit weight in the fund. It charges 50 bps.
SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV - Free Report)
The underlying index of the fund is designed to track the performance of U.S. large capitalization companies that exhibit low volatility. No stock makes up about 1.93% of the portfolio. Financials, technology and industrials have a double-digit weight in the fund. The fund charges 12 bps in fees.
Invesco S&P 500 Low Volatility ETF (SPLV - Free Report)
The underlying S&P 500 Low Volatility Index consists of 100 stocks from the S&P 500 Index with the lowest-realized volatility over the past 12 months. Utilities, financials and real estate have a double-digit weight in the fund. No stock makes up about 1.22% of the fund, which charges 25 bps in fees.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>