U.S. Markets closed

Low-Risk ETFs to Buy Amid Trade Volatility

Sweta Killa

The global stock market is reacting to changes in the trade narrative. Positive progress in U.S.-China talks is driving stocks while negative news is dragging them down.

Last weekend, U.S. President Trump announced a partial trade deal with China, namely, “substantial phase 1,” wherein Washington suspended the tariff hike on Chinese goods worth $250 billion and Beijing agreed to buy $40-$50 billion of U.S. farm products. Though the deal is yet to be finalized, the partial accord covers agriculture, currency, financial services and some aspects of intellectual property protection. The White House will also consider revoking its currency manipulation designation against China. The first part of the deal is expected to be signed by both the countries at the Nov 16 summit of the Asia Pacific Economic Cooperation countries in Santiago, Chile (read: ETFs to Buy on Phase 1 of U.S.-China Trade Deal).

This has led to huge optimism in the stock market, quelling fears of a global slowdown. However, various sources reported that China wants further discussions before signing the “Phase 1” deal. Speculations are rife that China wants Trump to scrap a planned tariff hike in December in addition to the hike scheduled for this week. As such, hopes of a trade deal have again dissipated, making investors flee to safety.

Against such a backdrop, those looking to remain invested in equity could consider low-risk ETFs.

Why?

Low-risk ETFs have the potential to outpace the broader market in bearish market conditions, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.

Below we present five ETFs that could be solid investment options in the current market scenario:

iShares Edge MSCI Min Vol USA ETF USMV

This fund offers exposure to 212 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. It is well spread across a number of securities, with none holding more than 1.8% of the assets. Information technology, financials, consumer staples, consumer discretionary and healthcare are the top five sectors accounting for a double-digit allocation each. With AUM of $36 billion, the product charges 0.15% in expense ratio and trades in solid average daily volume of 4.3 million shares. 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 with none accounting for more than 1.3% of assets. Utilities, financials, and real estate make up the top three sectors with a double-digit allocation each. SPLV has amassed $12.9 billion in its asset base and trades in heavy volume of around 3.5 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

Nationwide Risk-Based U.S. Equity ETF RBUS

This ETF follows the Rothschild & Co Risk-Based US Index and employs a risk-based strategy that seeks to provide upside potential while protecting against losses stemming from volatility. It holds well-diversified 250 stocks in its basket, with none of the securities accounting for more than a 3.7% share. Utilities, financial services, consumer defense, healthcare and consumer cyclical are the top five sectors. RBUS has accumulated $116.6 million and charges 30 bps in annual fees. It trades in a thin volume of 4,000 shares a day on average.

SPDR Russell 1000 Low Volatility Focus ETF ONEV

This fund follows the Russell 1000 Low Volatility Focused Factor Index and focuses on stocks that exhibit low volatility and offer downside protection. It holds 462 securities in its basket, with none accounting for more than 0.8% of assets. Financial services, producer durables and consumer discretionary are the top three sectors with a double-digit allocation each. The ETF has AUM of $557.1 million and charges 20 bps in annual fees. It trades in average daily volume of about 10,000 shares and has a Zacks ETF Rank #3.

Fidelity Low Volatility Factor ETF FDLO

This fund offers exposure to stocks with lower volatility than the broader market by tracking the Fidelity U.S. Low Volatility Factor Index. Holding 129 stocks in its basket, it is well spread across components, with none holding more than a 4.5% share. From a sector look, the ETF is skewed toward the information technology sector at 21.7% while financials, healthcare, and consumer discretionary round off the next three spots with a double-digit allocation each. The fund has been able to garner $313.3 million in AUM so far and the average daily volume is also moderate at 69,000 shares. FDLO charges 29 bps in annual fees from investors.

Bottom Line

These products could be worthwhile for investors with low risk tolerance and have the potential to outperform the broad market, especially if trade dispute continues to dampen sentiments.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>