3 Low-Volatility ETFs to Protect Your Portfolio from Wild Swings in the Market The stock market has been under immense pressure of late for various macroeconomic and geopolitical reasons. Investors' concerns over the Fed's aggressive interest rate increases to tame surging inflation, and...
By Dipanjan Banchur •
This story originally appeared on StockNews
The stock market has been under immense pressure of late for various macroeconomic and geopolitical reasons. Investors' concerns over the Fed's aggressive interest rate increases to tame surging inflation, and the possibility of an economic contraction, are expected to cause wild swings in the markets in the near term. Therefore, we think it could be wise to invest in less volatile ETFs iShares MSCI USA Min Vol Factor (USMV), Invesco S&P 500 Low Volatility (SPLV), and Legg Mason Low Volatility High Dividend (LVHD). Read on, let's discuss.
The stock market has been under tremendous pressure over the past few weeks due to investors' concerns about macroeconomic and geopolitical issues. However, the Dow Jones Industrial Average (DJIA) gained 191.66 points yesterday to close at 32,120.28, while the S&P 500 and the Nasdaq Composite jumped 0.9% and 1.5% to close at 3,978.73 and 11,434.74, respectively. But although the market ended with gains yesterday, overall market sentiment is expected to remain bearish.
Investors' concerns over the Federal Reserve's aggressive interest rate increases to tackle 40-year high inflation, supply disruptions due to the Ukraine-Russia war, the surprising decline in GDP in the first quarter, rising energy and commodity prices, and COVID-19 restrictions in China are the primary factors driving market volatility of late.
Since these factors are expected to keep the market volatile in the near term, we think investors looking for some stability in their portfolio returns could consider adding low-volatility ETFs, iShares MSCI USA Min Vol Factor ETF (USMV), Invesco S&P 500 Low Volatility ETF (SPLV), and Legg Mason Low Volatility High Dividend ETF (LVHD).
iShares MSCI USA Min Vol Factor ETF (USMV)
BlackRock Fund Advisors manages USMV. The fund seeks to track the performance of the MSCI USA Minimum Volatility (USD) Index.
USMV has $26.05 billion in assets under management (AUM). Its major holdings include The Kroger Co. (KR), with a 1.82% weighting in the fund, followed by Johnson & Johnson (JNJ) at 1.81%, and Vertex Pharmaceuticals Incorporated (VRTX) at 1.73%. It currently has 175 holdings in total.
Over the past three months, the ETFs fund flow has been $25.52 million. In addition, its 0.15% expense ratio compares favorably to the 0.37% category average. Over the past year, the fund has lost 0.6% to close the last trading session at $71.94.
USMV's POWR Ratings reflect this promising outlook. The ETF has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
USMV has a B grade for Buy & Hold and Peer. Among the 272 ETFs in the Large Cap Blend ETFs group, USMV is ranked #4. Click here to see USMV's rating for Trade grade.
Invesco S&P 500 Low Volatility ETF (SPLV)
Invesco Capital Management LLC manages SPLV. It invests in the less volatile stocks of large-cap companies. The fund seeks to track the performance of the S&P 500 Low Volatility Index by using the full replication technique.
SPLV has $9.89 billion in assets under management (AUM). Its major holdings include JNJ and PepsiCo, Inc. (PEP), each having a 1.26% weighting in the fund, followed by Verizon Communications Inc. (VZ) at 1.24%. It currently has 106 holdings in total.
The ETF's 0.25% expense ratio compares to the 1.22% category average. SPLV has seen $643.44 million in net inflows over the past month. It has gained 5.1% in price over the past year to close the last trading session at $64.23.
It is no surprise that SPLV has an overall B rating, which equates to Buy in our proprietary POWR Ratings system.
SPLV has a B for Buy & Hold grade. Within the 86 ETFs in the B-rated Large Cap Value ETFs group, SPLV is ranked #23. To see SPLV's Trade and Peer grade, click here.
Legg Mason Low Volatility High Dividend ETF (LVHD)
LVHD is managed by Legg Mason Partners Fund Advisor, LLC. It invests in less volatile, dividend-paying stocks of companies across diversified market capitalization. The fund seeks to track the performance of the QS Low Volatility High Dividend Index.
With $593.50 million in AUM, LVHD's major holdings include AT&T Inc. (T) with a 2.79% weighting in the fund, followed by Philip Morris International Inc. (PM) at 2.66%, and Gilead Sciences, Inc. (GILD) at 2.60%. It currently has 100 holdings in total.
Over the past five days, the ETFs fund flow has been $17.27 million. In addition, its 0.27% expense ratio compares favorably to the 1.22% category average. Over the past year, the fund has gained 6.6% to close the last trading session at $39.19.
LVHD's POWR Ratings reflect solid prospects. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
In addition, LVHD has an A for Trade, Buy & Hold, and Peer grade. Among the 167 ETFs in the All Cap Equities ETFs group, LVHD is ranked #2.
USMV shares were unchanged in premarket trading Thursday. Year-to-date, USMV has declined -10.76%, versus a -15.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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