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Here's Why it is the Right Time to Buy Low-Volatility ETFs

Sweta Jaiswal, FRM

Sino-US trade war tensions and slowing global economic growth have been making investors jittery. This in turn has been increasing demand for funds with “low volatility” or “minimum volatility.” Per a Wall Street Journal article, the 57 ETFs and mutual funds following the low-volatility strategy have witnessed an inflow of around $31.53 billion over the past year and possess assets worth $101.57 billion as of Sep 30 (read: S&P 500 at Record High: 6 ETF Winners of Last Week).

These seemingly safe products generally do not surge in a bull market but offer protection in unpredictable conditions. Providing more stable cash flow than the overall market, these funds are less cyclical in nature.

The current market conditions look encouraging for low-volatility funds. Per the recent developments, chances of postponement of the Sino-US ‘phase 1’ deal signing to December 2019 have increased. Moreover, there is uncertainty regarding the place of signing. It is believed that the two U.S. locations, Iowa and Alaska, have been ruled out and fresh locations in Asia and Europe are being shortlisted for the meeting.

Moreover, it is believed that the preliminary agreement majorly tackles the softer issues like U.S. farm goods and intellectual property protections related to copyright and trademark. However, it fails to resolve conflicts related to the China government’s providing of industrial subsidies to state-owned firms. Per a Reuters’ report, it is being speculated that due to inconsistencies in China’s new foreign investment law, it will not be able to provide proper access to its financial services market (read: Phase 1 Trade Deal or Not: ETFs to Ride the Trend).

ETFs in Focus

Low-volatility products could be intriguing choices for those who want to stay invested in equities during turbulent market conditions. The following options are intriguing:

iShares Edge MSCI Min Vol USA ETF USMV

This fund offers exposure to 212 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. With AUM of $36.05 billion, the product charges 0.15% in expense ratio. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 5 Amazing ETF Strategies for the Fourth Quarter).

Invesco S&P 500 Low Volatility ETF SPLV

This ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index and holds 100 securities in its basket. SPLV has amassed $12.55 billion in its asset base. It charges 25 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Low-Beta ETFs to Tap Amid Stock Market Selloff).

iShares Edge MSCI EAFE Minimum Volatility ETF EFAV

EFAV looks to replicate the performance of international equity securities that have lower risk. The fund tracks the MSCI EAFE Minimum Volatility (USD) Index and holds 280 securities. It has amassed $12.61 billion in its asset base. EFAV charges 20 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Low risk outlook (read: Time to Buy Global Low-Volatility ETFs?).

iShares Edge MSCI Min Vol Global ETF ACWV

The fund provides exposure to global stocks with potentially less risk. The fund tracks the MSCI All Country World Minimum Volatility Index and holds 444 securities. It has an AUM of $5.65 billion in the asset base. ACWV charges 20 bps in annual fees and has a Low risk outlook.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

The fund seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. It holds 50 securities. The fund has an AUM of $3.63 billion in the asset base. SPHD charges 30 bps in annual fees and has a Medium risk outlook.

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Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
 
iShares Edge MSCI Min Vol Global ETF (ACWV): ETF Research Reports
 
iShares Edge MSCI Min Vol EAFE ETF (EFAV): ETF Research Reports
 
iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
 
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports
 
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