Global markets bounced back in April after a entering a bear market in mid-March. Trillions of dollars of fiscal and monetary support aided the rebound. While markets are still in a decent shape on hopes of reopening of economies, associated fears of a second wave of coronavirus contagion have been crossing the path of bulls occasionally.
Moreover, U.S. Federal Reserve Chair Jerome Powell warned on May 13 of the threat of a long-drawn recession resulting from the coronavirus outbreak and suggested Congress and the White House to act further to counter the lasting adverse economic impact.
We all know, in a bull market, low-volatility stocks and ETFs normally fail to outperform. But since the market recovery in April was edgy in nature, lure for low-volatility and high-quality ETFs remained in place. These apparently safe products — which normally do not surge in a bull market but offer protection in troubled times — have been in decent shape this year despite the market rebound.
The S&P 500 has lost about 11.2% this year and some low-volatility ETFs performed in line with the key U.S. equity gauge. This indicates that any deterioration in the virus outlook may bring back the lull in the market and low-volatility ETFs may benefit out of it.
Moreover, the Fed has cut rates to zero, and launched unlimited QE. In a low interest rate environment, low-volatility strategies have historically delivered outperformance compared to the market cap indices, per several analysts.
ETFs to Play
Against such a backdrop, seeking refuge in low-volatility products rather than sticking to highly risky options can help investors endure the virus-led market storm. These low-volatility products could be intriguing choices for those who want to stay invested in equities, but like the idea of focusing on minimum volatility. Low-volatility ETFs generally tend to offer positive risk-adjusted gains, though not enormous.
Investors should note that the S&P (NYSE:SPY) 500 has lost about 2.1% past week. Many of the below-mentioned low-volatility ETFs beat the key U.S. quite gauge in the past five days (as of May 13, 2020).
WBI Bull|Bear Quality 3000 ETF WBIL – Down 7.3% YTD; Down 0.3% Past Week
WBIL is an active ETF focused on global small-, mid- and large-cap dividend paying stocks. The fund picks stocks with the highest quality fundamentals and potential for growth.The expense ratio of the fund is 1.21%.
iShares Edge MSCI (NYSE:MSCI) Min Vol Global ETF ACWV – Down 11.6% YTD; Down 1.1% Past Week
The underlying MSCI All Country World Minimum Volatility Index measures the combined performance of equity securities in both emerging and developed markets that have lower absolute volatility. It charges 20 bps in fees.
iShares Edge MSCI Min Vol USA ETF USMV – Down 12.6% YTD; Down 2.2% Past Week
The underlying MSCI USA Minimum Volatility Index is composed of U.S. equities that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market. It charges 15 bps in fees.
Fidelity Low Volatility Factor ETF FDLO – Down 12.2% YTD; Down 1.9% Past Week
The underlying Fidelity U.S. Low Volatility Factor Index reflects the performance of stocks of large and mid-capitalization U.S. companies with lower volatility than the broader market. It charges 29 bps in fees.
Franklin Liberty U.S. Low Volatility ETF FLLV – Down 12.4% YTD; Down 2.4% Past Week
This ETF is active and does not track a benchmark. The fund seeks capital appreciation with an emphasis on lower volatility than the broader equity market, as measured by the Russell 1000 Index (read: Active ETFs Gaining Priority: Top Performers of the Past Year).
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iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
iShares Edge MSCI Min Vol Global ETF (ACWV): ETF Research Reports
Fidelity Low Volatility Factor ETF (FDLO): ETF Research Reports
Franklin Liberty US Low Volatility ETF (FLLV): ETF Research Reports
WBI BullBear Quality 3000 ETF (WBIL): ETF Research Reports
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