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3 Low-Risk ETFs Beating SPY This Year

Zacks Equity Research

Investors’ anticipation of a continued bull run in 2014 has not borne fruit this year. After posting a robust 30% return in 2013, the S&P 500 has managed to log just about 3% return so far this year. First a frigid winter and then a series of downbeat economic indicators wavered investors’ confidence.  Almost all important data points – be it retail, housing and industrial output— came on the softer side giving cues of some deep-down economic issues.

To add to this, high-beta pain, slowdown in China and geo-political tension over Russia made things worse. Meanwhile, the economy has suffered the Q1 earnings season wherein anemic growth and subdued guidance were the underlying themes. Most market participants hoped for a full-fledged recovery in the market in the onset of spring. But proving them wrong, the market continued to witness a sloth movement even in Q2.  If the same trend continues in the coming months, we could well see a plunge in the equity markets.

According to some market experts like Ralph Acampora, the market is still not done with the momentum sell-off. Acampora believes that a 25% correction for small-cap, mid-cap and tech stocks is still due though he is inherently bullish on the long-term prospect of the market. His opinion was supported by another professional Dennis Gartman who indicated the some concerns.

According to Mr. Gartman, though markets have recovered slightly, the deviation between the returns of the Dow, Russell and Nasdaq indices leads to his doubts on the broad-based recovery in the market. He also believes that a correction is imminent. However, investors would like to hear that even in such a challenging situation, several ETFs have easily managed to hold higher.  

Below, we have handpicked three low-risk ETFs that beat the SPY this year. The following funds have gained on their own merit and investors could consider these for the diversification, yield and low volatility purpose if the U.S. stock market continues to experience volatility (read: 3 Low Beta ETFs for This Volatile Market).

YieldShares High Income ETF (YYY)

The fund looks to track the ISE High Income Index, a benchmark of 30 closed-end funds (CEFs) that seek to provide investors with high current monthly income levels. CEFs are included within the benchmark when these rank the highest overall on three key metrics; yield, discount to net asset value, and liquidity (read: YieldShares Launches New High Income ETF).

This fund follows a diversified strategy by investing 58% in stocks, 38% in bonds and the rest in multi-assets to give investors shelter from market volatility. The portfolio is widely spread across the individual holdings with no investment accounting for more than 4.65%. However, the choice is pricier in the diversified ETF space as it charges about 1.66% in annual fees. The product has returned 7.72% year-to-date.

Global X SuperDividend ETF (SDIV)                         

Investors seeking a solid level of current income in this clueless market should invest in SDIV. This ETF yield about 6%, much higher than 10-year treasury yield and the S&P 500 yield. SDIV has about 75% exposure in the international market. With the Fed steadily looking to further taper, international dividend picks have made a pretty strong comeback. And more than 6% dividend yield will keep the fund adorable even after a rise in interest rates in the U.S. (read: 3 Global ETFs to Earn Higher Yields).
SDIV is an equally weighted basket of 100 high yield stocks. With 30% exposure in U.S. equities, the fund also provides access to securities in Europe, Australia, Asia, Canada and Latin America.  Among sectors, real estate, financial services, telecommunication and utilities remain the top four choices for the fund. SDIV charges a fee of 58 basis points annually. The fund has an asset base of about $968.4 million. SDIV is up 9.44% this year. The fund currently has a Zacks Rank of 3 or Hold rating with a Medium risk outlook.
iShares MSCI EAFE Minimum Volatility ETF (EFAV)

With rising volatility becoming the main concern, low volatility ETFs are becoming increasingly popular among investors. Though the famous saying “no risk no gain” holds true in most cases, this low-risk or rather low volatile ETF gifted investors its best this year. On May 16, this fund hit its all-time high.

EFAV looks to replicate the performance of international equity securities that have lower absolute volatility. This equal-weighted ETF invests about $1.16 million in 191 holdings.

No single stock makes up more than 2.01% of the portfolio. Country wise, the fund appears more focused on United Kingdom and Japan equities, with the duo having a little less than 50% allocation in the fund.  The fund charges about 20 bps in fees. EFAV was up 6.23% this year.  The fund currently carries a Zacks ETF Rank #2 or Buy rating with a Medium risk outlook.

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Read the analyst report on SDIV

Read the analyst report on YYY

Read the analyst report on EFAV

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