The markets are likely in for a volatile year. Nevertheless, exchange traded fund investors have a few options to help diminish portfolio risks and help hedge against the swings.
Russ Koesterich, Global Chief Investment Strategist and Head of the Model Portfolio & Solutions Business at BlackRock, attributes the market volatility to a number of factors, including swings in the energy markets, evidence of economic deceleration in the U.S., poor economic data and uncertain financial market conditions.
“With central banks’ tools struggling to stimulate growth, markets are likely to remain volatile,” Koesterich said.
Consequently, Koesterich advises investors to look to tools to minimize downside risk.
For example, investors can consider low-volatility ETF strategies that provide exposure to the equities market but diminish the risks. Options include the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV), which selects low-volatile stocks based on variances and correlations along with other risk factors, [An ETF Strategy for Uncertain Times]
The PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) is the main competitor to iShares’ USMV. SPLV, though, simply tracks the 100 least volatile stocks taken out of the S&P 500.
Additionally, the SPDR Russell 1000 Low Volatility Focus ETF (NYSEArca: ONEV) tracks large-cap U.S. stocks that demonstrate a combination of high value, high quality and low size characteristics, with a focus on low volatility.