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Lower Risk in Your Portfolio with These ETFs

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The coronavirus pandemic is showing no signs of slowdown leading to relentless selling in U.S. stocks. The S&P 500 erased $9 trillion from its value since the benchmark hit a record high last month.

The malaise has resulted in lockdowns and forced people to stay indoors to contain the spread of COVID-19, putting economies of many nations at risk. Layoffs are surging as businesses scale back or temporarily shut down their operations. State unemployment offices are reporting an unprecedented spike in initial jobless claims. Spending — the engine of the U.S. economy — is collapsing like anything. Amid mass closures of private businesses, soaring layoffs and school shutdowns, market participants forecast global recession in the coming quarters (read: Invest in These Cash-Like ETFs).

However, the slew of aggressive policy easing by the Federal Reserve could provide some respite to the stocks. After slashing interest rates to near zero and offering to buy more government bonds and mortgage-backed securities as needed to support smooth market functioning, the Fed will now lend against student loans and credit card loans, as well as back the purchase of corporate bonds and direct loans to companies. This represents the most extreme intervention in the economy by the central bank in its history of more than 100 years.

Against such a backdrop, those looking to remain invested in equity could consider low-risk ETFs.


Low-risk ETFs have the potential to outpace the broader market in bearish market conditions, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets (read: Do Low Volatility ETFs Outperform During Market Turmoil?).

Below, we present five ETFs that could be solid investment options in the current market scenario:

iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)

This fund offers exposure to 207 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. It is well spread across a number of securities, with none holding more than 2.13% of the assets. Information technology, financials, consumer staples and healthcare are the top four sectors accounting for a double-digit allocation each. With AUM of $28 billion, the product charges 15 bps in annual fees and trades in solid average daily volume of 5.2 million shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Invesco S&P 500 Low Volatility ETF (SPLV - Free Report)

This 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 100 securities in its basket with none accounting for more than 1.6% of the assets. Utilities, real estate, financials and consumer staples make up the top four sectors with a double-digit allocation each. SPLV has amassed $8.5 billion in its asset base and trades in heavy volume of around 4.6 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Market Collapsing: 5 Strategies for a Winning ETF Portfolio).

Nationwide Risk-Based U.S. Equity ETF

This ETF follows the Rothschild & Co Risk-Based US Index and employs a risk-based strategy that seeks to provide upside potential while protecting against losses stemming from volatility. It holds well-diversified 251 stocks in its basket, with none of the securities accounting for more than a 2.32% share. Consumer defense, utilities, healthcare, financial services, and consumer cyclical are the top five sectors. RBUS has accumulated $78.2 million and charges 30 bps in annual fees. It trades in a thin volume of 5,000 shares a day on average.

SPDR Russell 1000 Low Volatility Focus ETF (ONEV - Free Report)

This fund follows the Russell 1000 Low Volatility Focused Factor Index and focuses on stocks that exhibit low volatility and offer downside protection. It holds 460 securities in its basket, with none accounting for more than 0.9% of the assets. Financial services, producer durables and consumer discretionary are the top three sectors with a double-digit allocation each. The ETF has AUM of $341.8 million and charges 20 bps in annual fees. It trades in average daily volume of about 16,000 shares and has a Zacks ETF Rank #3 (read: Has Wall Street's March Madness Peaked? ETFs to Tap).

Fidelity Low Volatility Factor ETF (FDLO - Free Report)

This fund offers exposure to stocks with lower volatility than the broader market by tracking the Fidelity U.S. Low Volatility Factor Index. Holding 125 stocks in its basket, it is well spread across components, with none holding more than a 5.5% share. From a sector look, the ETF is skewed toward the information technology sector at 24.8% while healthcare, financials, and consumer services round off the next three spots with a double-digit allocation each. The fund has been able to garner $308.9 million in AUM so far and the average daily volume is also moderate at 117,000 shares. FDLO charges 29 bps in annual fees from investors.

Bottom Line

These products could be worthwhile for investors with low-risk tolerance and have the potential to outperform the broader market, especially, if the pandemic continues to make matters worse.

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