This article was originally published on ETFTrends.com.
For the reluctant equities investor, Global investment firm Goldman Sachs says it’s not safe to dive headfirst out of safe haven assets and back into stocks just yet. Ever since 1928, October has proven to be 28% higher in terms of volatility.
It’s something to consider, especially for the queasy investor who can’t stomach the volatile market moves.
“We believe high October volatility is more than just a coincidence,” John Marshall, equity derivatives strategist at Goldman, said in a note Friday. “We believe it is a critical period for many investors and companies that manage performance to calendar year-end.”
Per a CNBC report, “ Cboe Volatility Index, a measure of the 30-day implied volatility of U.S. stocks also known as the VIX or “fear gauge,” has been tame this month as trade tensions between the U.S. and China eased and Treasury yields bounced back from their historic lows.”
One reason for October’s volatile nature is the reporting of third-quarter earnings. A volley of hits or misses in earnings can send the markets fluxing.
“Such pressures boost volumes and volatility as investors observe earnings reports, analyst days and management gives guidance for the following year,” Marshall said.
“Not only are earnings day moves rising relative to average daily moves, but October tends to be the quarter with the largest absolute earnings day moves for U.S. stocks,” Marshall added.
How can exchange-traded fund (ETF) investors play the volatility? There are certain funds to take refuge in if the markets get wild.
- Utilities Select Sector SPDR (XLU) : seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Utilities Select Sector Index. The index includes securities of companies from the following industries: electric utilities; water utilities; multi-utilities; independent power and renewable electricity producers; and gas utilities.
- iShares Dow Jones US Real Estate Index Fund (IYR) : seeks to track the investment results of the Dow Jones U.S. Real Estate Index. The underlying fund measures the performance of the real estate sector of the U.S. equity market and may include large-, mid- or small-capitalization companies.
- iShares 20+ Year Treasury Bond ETF (TLT) : seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index (the “underlying index”). The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than or equal to twenty years.
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