These exchange-traded, low-volatility funds are intended to provide more excellent long-term stability.
In 2020, uncertainty was the norm as the pandemic and related economic challenges rocked stock markets. From sharp declines in U.S. stocks in the spring to uncertainty surrounding an impending Brexit in Europe to the latest questions about the valuation of tech stocks, it’s hard to find a safe place to store your money that lasts longer than a few months. The following nine exchange-traded, low-volatility funds aim for a much lower risk profile than the typical fund; however, with strategies designed to limit large movements. You may not double your money overnight, but these ETFs are smart choices for investors who today are just as concerned about the downside as well as the upside.
This iShares ETF is Wall Street’s most extensive low-volatility offering, with nearly $ 34 billion in assets under management and a daily trading volume of approximately 4 million shares. USMV’s strategy is simple yet attractive: it boils down to the top 200 US-based companies that show less volatility than their peers and the market as a whole. The result focuses on base stocks like telecom giant Verizon Communications (V.Z.) and utilities like NextEra Energy (NO) that will consistently perform regardless of what’s happening in the economy. USMV also has a low annual expense ratio of 0.15% or $ 15 for every $ 10,000 invested.
Invesco S&P 500 Low Volatility ETF (SPLV)
A slightly more focused fund, SPLV selects the 100 stocks in the S&P 500 with the lowest volatility, that is, investments that have undergone smaller price movements over time. Unsurprisingly, less than 10% of the total portfolio is invested in the three sectors of consumer discretionary, real estate, and materials. While there are sometimes high-flying names in these industries, there are also choices that have suffered significant losses in the past. Instead, you’ll find companies that are a little more boring but certainly more reliable, like the proven cleaning company Clorox Co. (CLX), which has withstood the pandemic like a champion and hit a record high over the summer.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
Going one step further, Invesco also offers a low volatility fund that prioritizes the potential for dividend income. SPHD has a much smaller list of just 50 choices, making it generally less diversified than some larger ETFs and allowing the fund to focus its assets on companies offering higher paydays. These include document archiving and cloud security company Iron Mountain (IRM), which produces over 8% and currently accounts for around 3% of this ETF’s portfolio. Together, all interests of SPHD converge on a 12-month payout percentage of approximately 5.4%. It comes with an expense ratio of 0.3%.
iShares MSCIareFE Min Vol Factor ETF (EFAV)
A sister fund of the first-mentioned fund, USMV, is the iShares MSCI EAFE Min Vol Factor ETF. This low volatility ETF focuses on EAFE companies rather than national companies – Europe, Australasia, and the Far East. This fund of about $ 11 billion consists of a slightly broader list of around 270 stocks. The risk profile is very similar to its sister fund focused on the U.S. Current top positions include consumer giant Nestlé SA (NESN) and telecommunications company Swisscom AG (SCMN). A note for those looking for proper diversification: Japan represents about 30% of the portfolio, so there is a geographic bias here to keep in mind.
iShares MSCI Emerging Markets Min Vol Factor ETF (EEMV)
True to the theme, this iShares fund is another large, low-risk ETF, with more than $ 4 billion in total assets and a regional focus on low volatility investments. However, this time around, the fund is made up of equities from emerging markets in regions such as China, India, and Thailand. With a similar filter methodology that favors low volatility, you don’t gain exposure to the fast-moving small companies that many investors envision when they think of emerging markets. Instead, investors are given more reliable choices, like $ 400 billion chipmaker Taiwan Semiconductor Manufacturing (TSM), in this low-volatility ETF’s roughly 320 holdings.
iShares MSCI Global Min Vol Factor ETF (ACWV)
Don’t you want to choose just one region? Well, you don’t have to do that with this low volatility ETFs that holds nearly 400 stocks you’d find on any of these other regional funds. Right, about half of all assets are still in the United States, as it is the world’s largest stock market. Nevertheless, its next largest allocations include around 11% in Japan and about 6% in various European countries. This results in a generally diverse list of stocks around the world. The fund is also quite diversified across sectors, with technology stocks accounting for the largest tranche at around 15%, but all other sectors accounting for approximately 13% or less of the portfolio.
Invesco S&P MidCap Low Volatility ETF (XMLV)
Slicing up the stock market by size rather than geographic location, Invesco offers a mid-cap fund designed with a low volatility strategy in mind. There is naturally a bit more risk, of course, if you rule out the Wall Street mega-caps with the most bottomless wallets, but XMLV proves that there are many modest-sized companies that don’t have to be a household name to have an incredibly strong foundation. XML is made up of about 80 stocks like bakery operator Flowers Foods (FLO) – which owns well-known brands such as Tastykake treats and Wonder Bread – and chemicals and lubricants company NewMarket Corp. (NEU). XML also has a relatively low expense ratio of 0.25%.
Invesco S&P SmallCap Low Volatility ETF (XSLV)
For investors who want to get even smaller by focusing on the shortest portion of the U.S. stock market, XSLV is a realistic option for a low volatility ETF. It may seem inherently risky to exclude larger and even mid-market companies. Still, again, the screening process that Invesco deploys helps traders focus on low-risk options – no matter how big they are. Modest. For example, the largest sector represented in this ETF is industry thanks to specialist companies such as the solvent manufacturer WD-40 Co. (WDFC) and safety and inspection components company OSI Systems (OSIS ). These niche companies may never succeed in dominating Wall Street. Still, they do brisk business with a particular group of clients – giving them a lower volatility profile than some much larger stocks.