With every rate decision by the U.S. Federal Reserve, there comes initial volatility. For the conservative investor who wants to limit market fluctuations in a time when interest rate decisions can sway indexes profoundly, consider the American Century Low Volatility ETF (LVOL).
The broad expectation is that the Fed will hike rates, but less aggressively moving forward. Of course, how the markets digest Fed news and predicting their reaction can be a trying task in and of itself.
The recent pause by the Fed was widely expected, but what happens next is anybody’s guess. As such, investors may want to continue to be defensive through the rest of the year before fully depressing the risk-on accelerator pedal.
“This skip is a likely indicator that the Fed wants to give the previous hikes time to have an observable impact, specifically on inflation. It remains to be seen what happens in months to follow, but for June at least, borrowers could see somewhat of a stabilization of rates across a range of industries, in particular, mortgage and credit card,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
Hand-Picked Low Volatility Options
Per its product site, 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.
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