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Renewed Coronavirus Fears Put Low-Beta ETFs in Focus
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After a huge rally, Wall Street has been witnessing volatility lately on renewed fears of coronavirus infections as states moved forward with reopening their economies. The latest report showed that new COVID-19 infections soared to record highs in six U.S. states — Arizona, Florida, Oklahoma, Oregon and Texas — on Jun 16 marking a rise in cases for a second consecutive week. Hospitalizations are also rising or at record highs.
However, a flood of liquidity in the form of fiscal and economic stimulus will continue to provide upside to the stocks. The Federal Reserve steeped in for more stimulus and said that it would begin purchasing individual corporate bonds as part of its emergency lending program to inject liquidity into the virus-stricken economy. The move represents an expansion of the Fed’s previously announced secondary market corporate credit facility, which had only included purchases of exchange-traded funds. Additionally, President Donald Trump’s administration is preparing a $1 trillion infrastructure proposal to spur the world’s largest economy back to life (read: Fed's New Stimulus Regains Confidence: 4 ETF Picks).
Further, the latest bout of economic data related to manufacturing, job data, housing, retail sales and consumer confidence indicates that economy is recovering faster than expected. This has bolstered investors’ confidence.
As a result, investors may want to remain invested in the equity world but at the same time seek protection from a downside. This could be easily achieved by investing in low-beta products.
Why Low Beta?
Beta measures the price volatility of stocks relative to the overall market. It has direct relationship to market movements. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.
That said, low-beta products exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market is crumbling. Given lesser risks and lower returns, these are considered safe and resilient amid uncertainty. However, when markets soar, these low-beta funds experience lesser gains than the broader market counterparts and thus lag their peers.
With the help of our etfdb.com, we have highlighted five ETFs that could be intriguing options for investors amid bouts of volatility. All the funds offer exposure to a number of sectors and have AUM of more than $50 million, indicating their good tradability.
This actively managed fund seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. It tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The S&P 500 Total Return Index represents the equity component while the S&P 500 VIX Short-Term Futures Index represents the volatility component of the index. The non-equity (volatility + cash) portion makes up for one-fourth of the portfolio while the rest goes to equity. The fund has accumulated $55.4 million in its asset base and charges 39 bps in fees per year from investors. Volume is light, exchanging 29,000 shares a day on average (read: Bet on Value ETFs to Tap an Uneven Market).
This ETF seeks to track the return of the S&P 500 Price Return Index, up to a predetermined cap, while buffering investors against the first 15% of losses over the outcome period. It has been able to manage assets worth $81 million and charges 79 bps in annual fees. The product trades in average daily volume of 76,000 shares.
WBI Bull|Bear Quality 3000 ETF (WBIL)- Beta: 0.54
This fund is actively managed and seeks long-term capital appreciation. It invests in in small-, mid- and large-cap securities with strong measures of financial health and potential for growth. WBIL has amassed $53.9 million and charges 1.21% in annual fees. Volume is good as it exchanges 13,000 shares in hand per day on average (read: Did Markets Soar Ahead of Fundamentals? Quality ETFs to Play).
Day Hagan/Ned Davis Research Smart Sector ETF (SSUS - Free Report) – Beta: 0.59
This fund has newly debuted in the space, having attracted $69.2 million in its asset base with five months. It seeks long-term appreciation and preservation of capital. SSUS seeks investment objective by principally investing in equity ETFs that track the performance of the individual sectors of the S&P 500 Index. It attempts to enhance returns relative to the Index by overweighting and underweighting its exposure to the sectors relative to the Index and may reduce its overall exposure to ETF’s as determined by its risk management model. The ETF has expense ratio of 0.78% and averge daily volume of 33,000 shares.
Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) - Beta: 0.73
This ETF follows a “covered call” or “buy-write” strategy, in which the fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index. It tracks the CBOE Nasdaq-100 BuyWrite V2 Index. The product has $1.1 billion in AUM and an expense ratio of 0.60%. It trades in average daily volume of 604,000 shares.
Bottom Line
Investors should note that these products are not meant for generating outsized returns. Instead, these provide stability to the portfolio, protecting the initial investment. In particular, these products could be worthwhile for low risk-tolerant investors looking to safeguard their portfolio in the current market environment and seeking outperformance.
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Renewed Coronavirus Fears Put Low-Beta ETFs in Focus
After a huge rally, Wall Street has been witnessing volatility lately on renewed fears of coronavirus infections as states moved forward with reopening their economies. The latest report showed that new COVID-19 infections soared to record highs in six U.S. states — Arizona, Florida, Oklahoma, Oregon and Texas — on Jun 16 marking a rise in cases for a second consecutive week. Hospitalizations are also rising or at record highs.
However, a flood of liquidity in the form of fiscal and economic stimulus will continue to provide upside to the stocks. The Federal Reserve steeped in for more stimulus and said that it would begin purchasing individual corporate bonds as part of its emergency lending program to inject liquidity into the virus-stricken economy. The move represents an expansion of the Fed’s previously announced secondary market corporate credit facility, which had only included purchases of exchange-traded funds. Additionally, President Donald Trump’s administration is preparing a $1 trillion infrastructure proposal to spur the world’s largest economy back to life (read: Fed's New Stimulus Regains Confidence: 4 ETF Picks).
Further, the latest bout of economic data related to manufacturing, job data, housing, retail sales and consumer confidence indicates that economy is recovering faster than expected. This has bolstered investors’ confidence.
As a result, investors may want to remain invested in the equity world but at the same time seek protection from a downside. This could be easily achieved by investing in low-beta products.
Why Low Beta?
Beta measures the price volatility of stocks relative to the overall market. It has direct relationship to market movements. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.
That said, low-beta products exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market is crumbling. Given lesser risks and lower returns, these are considered safe and resilient amid uncertainty. However, when markets soar, these low-beta funds experience lesser gains than the broader market counterparts and thus lag their peers.
With the help of our etfdb.com, we have highlighted five ETFs that could be intriguing options for investors amid bouts of volatility. All the funds offer exposure to a number of sectors and have AUM of more than $50 million, indicating their good tradability.
Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) – Beta: 0.48
This actively managed fund seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. It tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The S&P 500 Total Return Index represents the equity component while the S&P 500 VIX Short-Term Futures Index represents the volatility component of the index. The non-equity (volatility + cash) portion makes up for one-fourth of the portfolio while the rest goes to equity. The fund has accumulated $55.4 million in its asset base and charges 39 bps in fees per year from investors. Volume is light, exchanging 29,000 shares a day on average (read: Bet on Value ETFs to Tap an Uneven Market).
Innovator S&P 500 Power Buffer ETF (PJUN - Free Report) – Beta: 0.53
This ETF seeks to track the return of the S&P 500 Price Return Index, up to a predetermined cap, while buffering investors against the first 15% of losses over the outcome period. It has been able to manage assets worth $81 million and charges 79 bps in annual fees. The product trades in average daily volume of 76,000 shares.
WBI Bull|Bear Quality 3000 ETF (WBIL) - Beta: 0.54
This fund is actively managed and seeks long-term capital appreciation. It invests in in small-, mid- and large-cap securities with strong measures of financial health and potential for growth. WBIL has amassed $53.9 million and charges 1.21% in annual fees. Volume is good as it exchanges 13,000 shares in hand per day on average (read: Did Markets Soar Ahead of Fundamentals? Quality ETFs to Play).
Day Hagan/Ned Davis Research Smart Sector ETF (SSUS - Free Report) – Beta: 0.59
This fund has newly debuted in the space, having attracted $69.2 million in its asset base with five months. It seeks long-term appreciation and preservation of capital. SSUS seeks investment objective by principally investing in equity ETFs that track the performance of the individual sectors of the S&P 500 Index. It attempts to enhance returns relative to the Index by overweighting and underweighting its exposure to the sectors relative to the Index and may reduce its overall exposure to ETF’s as determined by its risk management model. The ETF has expense ratio of 0.78% and averge daily volume of 33,000 shares.
Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) - Beta: 0.73
This ETF follows a “covered call” or “buy-write” strategy, in which the fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index. It tracks the CBOE Nasdaq-100 BuyWrite V2 Index. The product has $1.1 billion in AUM and an expense ratio of 0.60%. It trades in average daily volume of 604,000 shares.
Bottom Line
Investors should note that these products are not meant for generating outsized returns. Instead, these provide stability to the portfolio, protecting the initial investment. In particular, these products could be worthwhile for low risk-tolerant investors looking to safeguard their portfolio in the current market environment and seeking outperformance.
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 >>