Without a definitive monetary tightening plan from the Federal Reserve, we could be in for increased financial market volatility. Nevertheless, investors can still gain exposure to the upward moves in equities and limit the swings through low-volatility exchange traded fund strategies.
Larry Fink, chief executive of BlackRock (NYSE: BLK), warned that global volatility will remain elevated until the Fed clarifies its monetary policy, reports Stephen Foley for the Financial Times.
“There is so much uncertainty in the world and that is leading to more volatility,” Fink told the FT. “Some of the official authorities are guilty of, instead of being a calming influence, through their mixed messages, inflaming the markets.”
The Fed previously stated that the markets should expect an interest rate hike sometime this year. However, the central bank has been kicking the can down the road as global uncertainty lingers and U.S. jobs market showed some weakness. Now, more market observers anticipate the Fed to push off a rate hike to December or even into next year.
Consequently, investors seeking global exposure may want to consider low-volatility ETF strategies that specifically target company stocks with smaller swings. For instance, investors can target European market exposure through the iShares MSCI Europe Minimum Volatility ETF (NYSEArca: EUMV). Additionally, the relatively new PowerShares Europe Currency Hedged Low Volatility Portfolio (NYSEArca: FXEU) hedges against currency risks as well as targeting 80 of the least volatile stocks taken from the S&P Eurozone BMI Index. [Low-Vol Europe ETFs to Ride Out Volatile Conditions]
ETF investors can also take the low volatility theme to broader overseas markets. For example, the PowerShares S&P International Developed Low Volatility Portfolio (NYSEArca: IDLV) and iShares MSCI EAFE Minimum Volatility ETF (NYSEArca: EFAV) provide a low-volatile option for developed overseas markets. [Slow And Steady: ETF Strategies for a Volatile Market]
Additionally, investors can target emerging market exposure through the iShares MSCI Emerging Markets Minimum Volatility ETF (NYSEArca: EEMV) and PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSEArca: EELV).
However, potential investors should be aware that since these ETFs focus on more slow and stable companies, the low volatility strategy may underperform more growth-oriented stocks in an extended bullish rally.
For more information on ways to diminish portfolio volatility, visit our low-volatility ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.