Fall Volatility Could Spell Opportunity for this ETF

An end-of-August rally could portend to more strength for U.S. equities heading into the fall, but some analysts think it may be better to brace for more volatility.

The guessing game of whether the U.S. Federal Reserve will implement more interest rate hikes or not will continue to keep the markets in flux throughout the rest of the year. The first half of 2023 saw the equities market rallying until the month of August was met with sell-offs, but nonetheless, the S&P 500 index is still up about 18% for the year.

Still, as mentioned, the Fed’s’ stance on monetary policy will continue to have a profound effect on how investors approach the markets.

“So I believe that with the uncertainty leading up to the September 20 FOMC meeting, that could offer enough concern, uncertainty that would allow the markets to tread water,” said CFRA Research Chief Investment Strategist Sam Stovall.

Additionally, history shows that volatility can strike when summer starts to wind down and the leaves turn from green to orange. The month of September, in particular, could be prone to heavy bouts of volatility if history repeats itself.

“According to data compiled by Dow Jones, September is easily the worst month in terms of average monthly performance for all three major indexes: In September, the Dow falls an average of 1.08%, the S&P 500 slips 1.12%, and the Nasdaq slides 0.85%, dating back to 1896, 1928, and 1971, respectively,” a Barron’s article noted.

Counter Volatility With One ETF

Protecting against market volatility can mean implementing a multitude of strategies, such as shifting a portfolio to tilt towards safe haven assets or other hedging techniques. However, there’s a simpler solution that can help counter volatility while also capture market upside simultaneously: the American Century Low Volatility ETF (LVOL).

TVOL selects holdings “by actively applying quantitative models to identify profitable securities with attractive fundamentals, strong balance sheets and lower business risks. Manages portfolio volatility and downside risk through liquidity, sector, industry and credit rating constraints.”

This dynamic exposure comes at a low-cost expense ratio of 0.29%. The fund screens for asymmetric, or downside, volatility and invests in companies with strong, steady growth.

Salient fund features include:

  • Emphasis on strong fundamentals to limit potential risk of speculative companies with questionable profits.
  • Expanding risk measures beyond volatility to capture other downside and balance sheet risks.
  • Focus on volatility at the portfolio level as well as the individual stock level.
  • Use of a rebalancing strategy that actively responds to changing market conditions.

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