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After an astounding rally for the past couple of months, Wall Street is stuck in a vicious circle of volatility caused by fears of a second wave of coronavirus cases and the Fed’s grim economic outlook. This is especially true as the three major indices logged in their worst weekly declines since Mar 20 (read: 5 Big ETF Winners Amid Worst Market Crash Since March).
This rough trading is likely to persist as Bloomberg data showed that new cases in the densely populated state of Florida grew faster than the past week’s average as of Sunday’s tally and Washington State Department of Health issued a report warning of state-wide increases in the virus. According to Reuters, half a dozen states, including Texas and Arizona, are facing rising infections of COVID-19. Arizona, Utah and New Mexico all posted a rise in new cases of 40% or higher, while Florida, Arkansas, South Carolina and North Carolina saw cases rise by more than 30% for the week ended Jun 7, on a rolling seven-day basis.
The central bank said that the impacts of the COVID-19 pandemic would last for the next couple of months and cautioned that some of the millions of jobs that have been lost during the viral outbreak may never return. In fact, National Securities’ Art Hogan warned that the volatility burst will affect the market for weeks.
However, massive stimulus flowing into the economy, potential for coronavirus vaccines, and a surging technology sector will continue to provide an upside to the stock market.
Against such a backdrop, those seeking to remain invested in the equity world could consider low-risk ETFs by picking low-volatility products.
Why?
Low-volatility ETFs have the potential to outpace the broader market in an uncertain environment providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.
Given these characteristics, these products are in limelight yet again. We present some ETFs that could be solid options for investors amid the current market volatility. These are popular and liquid options in the low-volatility space.
This fund offers exposure to 194 stocks that have historically declined less than the market during downturns by tracking the MSCI USA Minimum Volatility Index. With AUM of $33.8 billion, the product charges 15 bps in annual fees and trades in solid average daily volume of 5.7 million shares. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
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 102 securities in its basket. SPLV has amassed $8.4 billion in its asset base and trades in heavy volume of around 5.4 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: ETF Strategies to Brave the Second Wave of Coronavirus Infections).
This ETF offers exposure to 51 stocks that have historically provided high dividend yields and low volatility. It has amassed $2.6 billion and charges 30 bps in annual fees. The fund trades in average daily volume of 1.3 million shares.
This fund offers exposure to the mid-cap segment with the lowest-realized volatility over the past 12 months. It follows the S&P MidCap 400 Low Volatility Index and holds 81 securities in its basket. The ETF has AUM of $2.3 billion and charges 25 bps in annual fees. It trades in average daily volume of about 559,000 shares.
This ETF follows the LibertyQ U.S. Large Cap Equity Index, which employs a rules-based, custom multi-factor approach providing exposure to four well known factors: 50% Quality, 30% Value, 10% Momentum and 10% Low Volatility. It has 247 stocks in its basket with AUM of $1.3 billion and expense ratio of 0.15%. The ETF trades in volume of 217,000 shares per day on average and has a Zacks ETF Rank #3 (Hold).
This fund targets the small-cap segment of the broad market and follows the S&P SmallCap 600 Index. It holds 121 stocks in its basket and charges 25 bps in annual fees. The product has amassed $1.3 billion and trades in volume of 539,000 shares per day on average.
This fund provides exposure to 83 U.S. companies with a relatively high yield, low price and earnings volatility by tracking the QS Low Volatility High Dividend Index. The ETF has $676.4 million in AUM and trades in moderate volume of 186,000 shares. It charges 27 bps in fees and has a Zacks ETF Rank #3.
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 459 securities in its basket with AUM of $481.1 million and expense ratio of 0.20%. It trades in average daily volume of about 20,000 shares and has a Zacks ETF Rank #3 (read: Market Volatility Returns: Bet on These ETFs).
Bottom Line
Investors should note that these products are not meant for generating outsized returns. Instead, these provide stability to the portfolio, thus protecting the initial investment.
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Worried About Volatility? Invest in These ETFs
After an astounding rally for the past couple of months, Wall Street is stuck in a vicious circle of volatility caused by fears of a second wave of coronavirus cases and the Fed’s grim economic outlook. This is especially true as the three major indices logged in their worst weekly declines since Mar 20 (read: 5 Big ETF Winners Amid Worst Market Crash Since March).
This rough trading is likely to persist as Bloomberg data showed that new cases in the densely populated state of Florida grew faster than the past week’s average as of Sunday’s tally and Washington State Department of Health issued a report warning of state-wide increases in the virus. According to Reuters, half a dozen states, including Texas and Arizona, are facing rising infections of COVID-19. Arizona, Utah and New Mexico all posted a rise in new cases of 40% or higher, while Florida, Arkansas, South Carolina and North Carolina saw cases rise by more than 30% for the week ended Jun 7, on a rolling seven-day basis.
The central bank said that the impacts of the COVID-19 pandemic would last for the next couple of months and cautioned that some of the millions of jobs that have been lost during the viral outbreak may never return. In fact, National Securities’ Art Hogan warned that the volatility burst will affect the market for weeks.
However, massive stimulus flowing into the economy, potential for coronavirus vaccines, and a surging technology sector will continue to provide an upside to the stock market.
Against such a backdrop, those seeking to remain invested in the equity world could consider low-risk ETFs by picking low-volatility products.
Why?
Low-volatility ETFs have the potential to outpace the broader market in an uncertain environment providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.
Given these characteristics, these products are in limelight yet again. We present some ETFs that could be solid options for investors amid the current market volatility. These are popular and liquid options in the low-volatility space.
iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)
This fund offers exposure to 194 stocks that have historically declined less than the market during downturns by tracking the MSCI USA Minimum Volatility Index. With AUM of $33.8 billion, the product charges 15 bps in annual fees and trades in solid average daily volume of 5.7 million shares. It has a Zacks ETF Rank #2 (Buy) 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 102 securities in its basket. SPLV has amassed $8.4 billion in its asset base and trades in heavy volume of around 5.4 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: ETF Strategies to Brave the Second Wave of Coronavirus Infections).
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report)
This ETF offers exposure to 51 stocks that have historically provided high dividend yields and low volatility. It has amassed $2.6 billion and charges 30 bps in annual fees. The fund trades in average daily volume of 1.3 million shares.
Invesco S&P MidCap Low Volatility ETF (XMLV - Free Report)
This fund offers exposure to the mid-cap segment with the lowest-realized volatility over the past 12 months. It follows the S&P MidCap 400 Low Volatility Index and holds 81 securities in its basket. The ETF has AUM of $2.3 billion and charges 25 bps in annual fees. It trades in average daily volume of about 559,000 shares.
Franklin LibertyQ U.S. Equity ETF (FLQL - Free Report)
This ETF follows the LibertyQ U.S. Large Cap Equity Index, which employs a rules-based, custom multi-factor approach providing exposure to four well known factors: 50% Quality, 30% Value, 10% Momentum and 10% Low Volatility. It has 247 stocks in its basket with AUM of $1.3 billion and expense ratio of 0.15%. The ETF trades in volume of 217,000 shares per day on average and has a Zacks ETF Rank #3 (Hold).
Invesco S&P SmallCap Low Volatility ETF (XSLV - Free Report)
This fund targets the small-cap segment of the broad market and follows the S&P SmallCap 600 Index. It holds 121 stocks in its basket and charges 25 bps in annual fees. The product has amassed $1.3 billion and trades in volume of 539,000 shares per day on average.
Legg Mason Low Volatility High Dividend ETF (LVHD - Free Report)
This fund provides exposure to 83 U.S. companies with a relatively high yield, low price and earnings volatility by tracking the QS Low Volatility High Dividend Index. The ETF has $676.4 million in AUM and trades in moderate volume of 186,000 shares. It charges 27 bps in fees and has a Zacks ETF Rank #3.
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 459 securities in its basket with AUM of $481.1 million and expense ratio of 0.20%. It trades in average daily volume of about 20,000 shares and has a Zacks ETF Rank #3 (read: Market Volatility Returns: Bet on These ETFs).
Bottom Line
Investors should note that these products are not meant for generating outsized returns. Instead, these provide stability to the portfolio, thus protecting the initial investment.
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 >>