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Low-Volatility ETFs Trading at a 52-Week High

Sanghamitra Saha
The U.S. economic growth in the first quarter breezed past expectations and marked the best first-quarter growth in four years. These ETF areas should gain from this momentum.

U.S. markets may be in great shape in 2019, thanks to a dovish Fed and U.S.-China trade optimism, but this has not removed the spotlight from low-volatility products. These apparently safe products, which normally do not surge in a bull market but offer protection in troubled times, are still in a steady position despite the highs scaled by stocks. Several low-volatility ETFs are currently trading at a 52-week high.

Why Investors Are Bullish on Low-volatility ETFs

Global growth worries remain rife. Most of the developed economies, especially in Europe and some emerging economies, have been suffering a slowdown. Eurozone’s Q4 GDP growth (0.2%) was at a four-year low. The Japanese economy advanced 0.5% sequentially in Q4, reversing from a 0.7% contraction in the previous period.

The Chinese economy logged the lowest growth rate in the fourth quarter since the global financial crisis. China has also cut its economic growth forecast for 2019 to the range of 6-6.5%, down from a target of 6.5% over the past two years (read: What Led China ETFs Outperform in Q1 & Have More Room to Run). 

Investors should note that, in March, the Fed lowered the forecast for 2019 real GDP growth to 2.1% from December’s projection of 2.3%. The central bank trimmed the 2020 growth forecast to 1.9% from 2.0% in December. With recession anxieties rising, people are increasingly fretting over if the Federal Reserve has enough tools to react.

Things are not very upbeat on the corporate earnings front. Earnings growth for the first quarter is expected to turn negative, marking the first earnings decline since the second quarter of 2016, per the Earnings Trends issued on Apr 3, 2019.

Margin pressure is likely to be blamed for this slowdown. Tough year-over-year comparisons weighed on margins. Last year, margins received a one-time boost from the tax reform. Also, higher costs related to payroll, materials and transportation are likely to hurt margins. Total S&P 500 earnings are expected to decline 4.0% year over year on 4.6% higher revenues and 100 basis points of squeeze in net margins.

Though there were signs of improvement in 2018, U.S.-China trade tensions are not resolved yet. These wavering factors explain why a group of investors is still sticking to low-volatility ETFs (read: US-China Talks Set in Washington: ETFs in Focus).

ETFs in Focus

Below we highlight a few low-volatility U.S. ETFs that have been in fine fettle this year despite a market rebound. These funds are currently trading around a 52-week high level. These ETFs have returned slightly lower than or in line with the S&P-based fund SPY in the past three months (up 14.8%).

Invesco S&P 500 High Dividend Low Volatility ETF SPHD – Up 12.6%

Invesco S&P 500 Low Volatility ETF SPLV – Up 14.7%

 iShares Edge MSCI Min Vol USA ETF USMV – Up 13.7%

Invesco S&P 500 ex-Rate Sensitive Low Volatility ETF XRLV – Up 14.6%     

O'Shares FTSE U.S. Quality Dividend ETF OUSA – Up 13.5% 

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iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
 
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
 
O'Shares FTSE US Quality Dividend ETF (OUSA): ETF Research Reports
 
Invesco S&P 500 ex-Rate Sensitive Low Volatility ETF (XRLV): ETF Research Reports
 
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports
 
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