5 Low-Risk ETFs to Buy Amid Historic Bond Turmoil
The rout in the U.S. bond market has deepened on growing anticipation of persistently high interest rates, sending shockwaves across the global economy and financial market. The ultra-popular bond ETF — iShares 20+ Year Treasury Bond ETF TLT — touched the lowest level since Jul 9, 2007, according to Dow Jones Market Data.
The rout has cast a long shadow over global equities, with the specter of rising interest rates threatening to derail the bullish momentum in the stock market. In such a scenario, investors are increasingly exploring diversified strategies that help to protect their portfolios from downside risk.
Low-risk ETFs like iShares Edge MSCI Min Vol USA ETF USMV, Simplify Tail Risk Strategy ETF CYA, Cambria Tail Risk ETF TAIL AGFiQ US Market Neutral Anti-Beta Fund BTAL and AdvisorShares Dorsey Wright Short ETF DWSH could be compelling choices. These ETFs are designed for investors who prioritize capital preservation over high returns.
The yields on 10-year bonds soared to a 16-year high and topped 5%, reflecting the market's bet on a sustained period of high interest rates. With the market expecting one more Fed hike, yields are expected to rise further, thereby deepening bond market losses. As yields climb, the cost of borrowing surges, potentially curtailing consumer spending and corporate investment and thereby posing a significant headwind to economic recovery (read: Covered Call ETFs: A High-Yield Income Strategy for Investors).
Further, the escalation in the Middle East conflict failed to bring back the allure of the Treasuries even though they are regarded as safe-haven investments in times of uncertainty.
ETFs in Focus
iShares MSCI USA Min Vol Factor ETF (USMV)
iShares MSCI USA Min Vol Factor ETF offers exposure to the stocks that have historically declined less than the market during downturns by tracking the MSCI USA Minimum Volatility Index. It holds 168 stocks in its basket, with none accounting for more than 2.1% of the assets. Information technology takes the top spot at 23.1%, while healthcare, financials, industrials and consumer staples round off the next four spots (read: 5 Winning ETF Strategies for Q4).
With AUM of $28.3 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 2.2 million shares. USMV has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Simplify Tail Risk Strategy ETF (CYA)
Simplify Tail Risk Strategy ETF seeks to provide income and capital appreciation while protecting against significant downside risk to investors by hedging diversified portfolios against severe equity market sell-offs. The fund deploys advanced options strategies designed to handle multiple types of market dislocations.
Simplify Tail Risk Strategy ETF has amassed $24.2 million in its asset base and charges 84 bps in annual fees from investors. It trades in a volume of 421,000 shares a day on average.
Cambria Tail Risk ETF (TAIL)
Cambria Tail Risk ETF seeks to mitigate significant downside market risk as it invests in a portfolio of "out of the money" put options purchased on the U.S. stock market. The TAIL strategy offers the potential advantage of buying more puts when volatility is low and fewer puts when volatility is high. While a portion of the fund's assets are invested in the basket of long put option premiums, the majority of fund assets will be invested in intermediate-term U.S. Treasuries (read: 5 ETFs to Protect Your Portfolio From Downside Risk).
Cambria Tail Risk ETF has amassed $159.5 million in its asset base and charges 59 bps in annual fees from investors. It trades in a volume of 73,000 shares a day on average.
AGFiQ US Market Neutral Anti-Beta Fund (BTAL)
AGFiQ US Market Neutral Anti-Beta Fund has the potential to generate positive returns regardless of the direction of the stock market as long as low-beta stocks outperform high-beta stocks. It invests primarily in long positions in low-beta U.S. equities and short positions in high-beta U.S. equities on a dollar-neutral basis within sectors.
AGFiQ US Market Neutral Anti-Beta Fund has AUM of $308.8 million and an expense ratio of 1.54%. It trades in a volume of 321,000 shares a day on average.
AdvisorShares Dorsey Wright Short ETF (DWSH)
AdvisorShares Dorsey Wright Short ETF is an actively managed fund that short sells U.S. large-cap securities with the highest relative weakness within an investment universe primarily comprising large-capitalization U.S.-traded equities. It holds 102 stocks in its basket, with healthcare, financials, consumer discretionary and communication services accounting for double-digit exposure each.
AdvisorShares Dorsey Wright Short ETF trades in a lower average daily volume of 73,000 shares and has accumulated $26.4 million in its asset base. It charges a higher annual fee of 2.77%.
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iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports
AGF U.S. Market Neutral Anti-Beta Fund (BTAL): ETF Research Reports
Cambria Tail Risk ETF (TAIL): ETF Research Reports
AdvisorShares Dorsey Wright Short ETF (DWSH): ETF Research Reports
Simplify Tail Risk Strategy ETF (CYA): ETF Research Reports
