In the world of investing, managing risk is just as important as pursuing returns. Volatility is a key concept here, representing the degree of variation in a security’s price over time. High volatility means the price of the security can change dramatically in a short period, providing potential for high returns, but also greater risk. This is where the appeal of a low volatility ETF comes in, especially for risk-averse investors.
Welcome to our comprehensive guide on picking a low volatility ETF, with a list of selected ETFs.
In this blog post, we’re going to navigate the exciting, yet often misunderstood terrain of low volatility ETFs. These financial instruments provide investors with exposure to a broad market, sector, or index, while prioritizing stocks that have demonstrated lower volatility. They’ve become an integral part of a well-rounded investment strategy for many, providing potential downside protection during turbulent market conditions.
Whether you’re new to investing, or a seasoned veteran looking to diversify your portfolio and safeguard it against wild market swings, understanding the appeal and utility of low volatility ETFs is essential. So, let’s embark on this financial journey together, dissecting the concept of volatility, exploring the advantages and potential drawbacks of low volatility ETFs, and most importantly, guiding you in picking the right low volatility ETF that fits your investment profile and goals.
The Invesco S&P 500 Low Volatility ETF (SPLV) is an exchange-traded fund managed by Invesco, a global investment management firm. The SPLV is designed to track the performance of the S&P 500 Low Volatility Index, which consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months.
Low volatility ETFs like the SPLV are typically favored by investors who are looking for a more conservative approach to investing in the stock market, with less exposure to dramatic swings in price. They are often considered a good choice for risk-averse investors, those nearing retirement, or investors looking for more stability in their portfolios during volatile or uncertain market conditions.
The SPLV ETF includes a diverse set of companies from various sectors, including utilities, real estate, and consumer staples, which traditionally have lower volatility compared to sectors like technology and financials. The ETF’s holdings are rebalanced and reconstituted on a quarterly basis.
As with all investments, the SPLV comes with its own set of risks. These include market risk, where the price of the ETF could decline due to a drop in the overall stock market, as well as sector risk, as the ETF may be heavily weighted in certain sectors that could underperform.
It’s always a good idea to understand your own investment goals, risk tolerance, and time horizon, and consider speaking with a financial advisor before investing in any ETF or other investment product.
The iShares Edge MSCI Min Vol USA ETF (USMV) is an exchange-traded fund (ETF) managed by BlackRock, one of the largest asset managers globally. The ETF is designed to track the performance of the MSCI USA Minimum Volatility (USD) Index, which consists of U.S. stocks that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market.
Similar to the Invesco S&P 500 Low Volatility ETF (SPLV) mentioned earlier, low volatility ETFs like USMV are often favored by investors who are looking for a more conservative approach to investing in the stock market. They aim to reduce exposure to market volatility and typically include companies that are less likely to experience significant price swings.
The USMV ETF includes a diverse array of companies from various sectors. The fund’s holdings are rebalanced semi-annually to maintain adherence to its low volatility objective.
In terms of risks, the USMV ETF also comes with its share. These include market risk, where the price of the ETF could decline if the overall stock market falls, and sector risk, as the ETF might be more heavily invested in certain sectors that could underperform.
Investing in the USMV ETF, like any investment, should align with your investment goals, risk tolerance, and investment horizon. It’s always recommended to understand the product well and consider speaking with a financial advisor before making an investment decision.
The iShares Edge MSCI Min Vol Global ETF (ACWV) is an exchange-traded fund (ETF) that is managed by BlackRock, one of the world’s largest asset management companies. The ACWV is designed to mimic the performance of the MSCI All Country World Minimum Volatility (USD) Index, which consists of stocks from both developed and emerging markets that, as a whole, have lower volatility characteristics compared to the broader global equity markets.
Like other minimum volatility ETFs, ACWV is usually favored by investors looking to mitigate their exposure to significant price swings in the equity markets. This can make the ETF appealing to more conservative investors, those close to retirement, or any investors looking to temper the volatility in their portfolio, especially during periods of market uncertainty or turmoil.
ACWV includes a diverse array of companies from numerous sectors and countries, which allows for a more globally diversified portfolio compared to US-only minimum volatility ETFs like the USMV. The holdings of the fund are rebalanced semi-annually to maintain adherence to its minimum volatility objective.
As with any investment, investing in the ACWV ETF comes with a set of risks. These include, among others, market risk, where the ETF’s price could decrease with a drop in the overall global stock markets; country or regional risk, given that the ETF invests in multiple geographical areas which might have their own unique set of economic, political, or regulatory risks; and currency risk, as the ETF invests in non-US securities, the value of which can be affected by changes in foreign exchange rates.
Before investing in the ACWV ETF or any investment product, it’s important to understand your investment objectives, risk tolerance, and time horizon, and consider consulting with a financial advisor.
The Fidelity Low Volatility Factor ETF (FDLO) is an exchange-traded fund managed by Fidelity Investments, a major global asset management firm. The FDLO is designed to reflect the performance of stocks of large and mid-capitalization U.S. companies with lower volatility than the broader market.
Like other low volatility ETFs, FDLO can be favored by investors who are seeking to mitigate risk in their portfolios. Such funds are typically viewed as more conservative investments, offering a potentially lower-risk exposure to the equity markets. They can be particularly attractive to investors during times of heightened market volatility or for those with a lower risk tolerance, such as individuals nearing retirement.
FDLO’s holdings include a wide range of companies from various sectors, providing a diverse investment opportunity within the U.S. equity market. The ETF’s holdings are reconstituted and rebalanced periodically in order to stay in line with its low volatility objective.
As with any investment, FDLO comes with risks, including market risk where the ETF’s price could decline in response to a drop in the overall stock market. Additionally, there may be sector risks as the ETF could be more heavily weighted in certain sectors that might underperform.
It’s crucial to thoroughly understand your personal investment goals, risk tolerance, and time horizon before investing in any ETF, including FDLO. You should also consider consulting with a financial advisor to ensure that any investment aligns with your broader financial plan.