Some ETFs to Ride Out Market Volatility

ETF Trends

Equity markets performed well during the first quarter of 2012, as developed markets gained around 11%, and emerging markets rallied around 13%. As the momentum has waned and equity markets have stalled, what can exchange traded fund investors expect for the second quarter?

“While markets can still move higher, gains are likely to be predicated on earnings growth, which in turn will depend on further improvement in the global economy. And even if the economy continues to stabilize, we’re unlikely to see another round of quantitative easing until at least July, as the Fed’s Operation Twist is set to continue through June,” Russ Koesterich, CFA, wrote on the iShares Blog.

If there is no monetary easing coming into play this year, market volatility is likely to return. The fundamentals of the U.S. economy have not been able to completely heal and therefore, can not turn around, reports Russ Koesterich for the iShares blog. [ETF Data: Outflows on Market Weakness]

For the second quarter, investors may want to consider repositioning their portfolios to access international equity income, and look into investment grade credit for a defensive play. Other points for investors to position their portfolios include:

  • Investors should  consider high income stocks, as slow growth and volatility are anticipated. There are various dividend play to give investors broad exposure at a reasonable price. iShares Dow Jones International Select Dividend Index Fund (NYSEArca: IDV - News) and the iShares Emerging Markets Dividend Index Fund (NYSEArca: DVYE - News) are not as expensive as U.S. funds at the moment. [Three Heavyweight International Dividend ETFs]
  • Low volatility ETFs are a good way to gain exposure to low volatility methodology, in which funds hold low-beta stocks, compared to a traditional cap-weighted index. This can help insure portfolios from drastic market swings.
  • High yield and investment grade debt are also good options. Investment grade ETFs are an affordable option and will be favored in a volatile market, such as the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD - News) . [ETF Spotlight: High Yield Bonds]

Tisha Guerrero contributed to this article.

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