Since investors believe the negatives will overwhelm the markets, low-volatility ETFs remain popular hedging tools.
For example, the most popular and largest low-volatility ETF is the PowerShares S&P 500 Low Volatility ETF (NYSEArca: SPLV). SPLV has a 0.25% expense ratio and a 2.96% yield. It’s top holdings include safe name brands like Southern Co. 1.5%, Kimberly-Clark 1.4%, General Mills 1.4%, Campbell Soup 1.3% and Procter & Gamble 1.3%. The fund also leans toward defensive sectors, with consumer staples at 31.1%, utilities at 29.0% and health care at 14.2%. [Some Overlooked Low-Volatility ETFs]
However, potential investors should note that SPLV is not designed to beat the broad market. Low-volatility ETFs help mitigate the swings during sharp market turns, but in a bullish rally, the ETFs tend to underperform the overall markets. For instance, SPLV has only gained 5.6% over the last three-months, compared to the 7.6% increase in the S&P 500.
For more information on low-volatility funds, visit our low-volatility category.
Max Chen contributed to this article.