Reduce Exposure to Market Volatility With This Actively Managed ETF

Volatility continued to whipsaw markets as U.S. stocks slipped on Thursday amid rising concerns of an economic slowdown. The S&P 500 recently dipped roughly 0.8%, approaching bear market territory. The index fell 4% on Wednesday, its largest single-day drop since June 2020. Following that slip, the S&P 500 had fallen more than 18% from its all-time high in January.

Meanwhile, the Dow Jones Industrial Average slipped roughly 1% Thursday afternoon, putting it at around 15% below its all-time closing high. The Nasdaq Composite Index, which entered bear country earlier this year, was recently off roughly 0.3%.

“Investors appear increasingly concerned the Federal Reserve will have a hard time containing inflation without hurting economic growth,” said a note from Charles Schwab. “We expect its aggressive stance toward prices to lead to more volatility this year. Stock prices already reflect some economic weakness, but they likely haven’t priced in the possibility of a recession.”

Investors worried about the volatility that markets are currently facing may want to consider the American Century Low Volatility ETF (NYSEArca: LVOL), which looks to track the market long-term while also offering less volatility, especially in downturns.

Benchmarked against the S&P 500, LVOL is an actively managed fund that seeks to offer lower volatility than the overall market by screening for asymmetric, or downside, volatility as well as investing in companies with strong, steady growth. It looks to reduce volatility both at the portfolio level and also in its individual securities. The portfolio managers seek to balance returns with risk management by evaluating the individual securities and their place and performance within their sector and overall.

The fund’s managers use quantitative models to select securities with attractive fundamentals that they expect will provide returns that will reasonably track the market over the long term, while seeking less volatility.

When the fund was launched last year, Ed Rosenberg, head of ETFs at American Century, said that LVOL enables “a nimble approach that can adapt to quantitative insights and challenging market conditions.”

LVOL’s portfolio managers aim to deliver market returns in normal markets while losing less in drawdowns by correcting for the shortcomings of low-volatility indexes. “We’re emphasizing strong fundamentals in an effort to limit potential risk of speculative companies with questionable profits,” Rosenberg added. “We’re also expanding risk measures beyond volatility to capture other downside and balance sheet risks while focusing on volatility at the portfolio level as well as the individual stock level.”

LVOL has an expense ratio of 0.29%.

For more news, information, and strategy, visit the Core Strategies Channel.