Investors can hide out in these low volatility bets if more market turmoil is ahead

CNBC2021-07-09

Themarket pullback on Thursdayinjected a shot of volatility into what had been a sleepy Wall Street, and some investors surely want to quickly return to quieter times. In the stock market, volatility ...

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Comments

ASMH
2021-07-09
ASMH
Like
Valerie9600
2021-07-09
Valerie9600
??
edgetrader
2021-07-09
edgetrader
Buy the vix?
Suzanne94
2021-07-09
Suzanne94
Good
- lynnc:
  good
kencarrot
2021-07-09
kencarrot
Okay
- Suzanne94:
  Yes
Mtan23
2021-07-09
Mtan23
Good to know
- kencarrot:
  yes

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Many investors view low volatility plays as having less risk than other bets, but the upside during strong periods for the market could be limited.\nAs a result, many investment firms have built products, such as ETFs, that aim to have lower volatility than the broader market.\nOne option is theInvesco S&P 500 Low Volatility ETF(SPLV), which seeks to hold the 100 least volatile stocks in the broad market index. The fund has a four-star rating from Morningstar and its top holdings includeColgate-Palmolive,PepsiCoandVerizon.\nTwo of the other biggest funds for large cap stocks with low volatility are Blackrock’siShares MSCI USA Min Vol Factor ETF(USMV) and State Street’sSPDR SSGA U.S. Large Cap Low Volatility Index ETF(LGLV).Those three funds were all outperforming the S&P 500 on Thursday, and they also outperformed the broader market in September and October of last year, when the S&P 500 pulled back 6.6% after its summer rebound.\nAnother popular play during volatile periods are dividend funds, as investors try to lock in income when price returns are uncertain. TheVanguard Dividend Appreciation ETF(VIG), as an example, outperformed the S&P 500 during the fall downturn as well.\nTo be sure, sometimes low volatility strategies can be swamped by dramatic declines in the market.\nBetween Feb. 20 and March 23 of last year, as the coronavirus pandemic began spreading rapidly in the U.S. and Europe, the S&P 500 dropped by more than 33%. The iShares low volatility fund only slightly outperformed the benchmark index, while the Invesco and SPDR funds actually fell further. The Vanguard dividend fund fell 31%.\nBen Johnson, the director of global ETF research at Morningstar, said it was important to understand that “low volatility doesn’t mean no volatility” and that low volatility ETFs have seen large outflows over the past year, suggesting that the investors weren’t happy with the performance in 2020.\n“At the end of the day, these are still stocks you’re investing in,” Johnson said. “While these funds might be less volatile than buying a broad market index fund, they’re still going to be a heck of a lot more volatile than a bond fund would be.”\nIf investors want to be more aggressive about avoiding the risks of the stock market, there are non-traditional strategies and bond-heavy funds that could further diversify portfolios.\nAmplify’s BlackSwan Growth & Treasury Core ETF(SWAN), which holds mostly U.S. Treasuries plus call options on the S&P 500 to capture equity upside, was outperforming the equity markets and the low-volatility ETFs on Thursday.\nThe fund had also been steadily churning higher recently, rising 10 times in 12 sessions, as some investors may have gotten nervous about the market’s record 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