Following the post-Liberation Day market slide six months ago, investors have been rewarded for taking risk and playing offense over defense. But October is serving as a reminder that it always pays to have a hedge or a buffer in a portfolio. The Invesco QQQ Low Volatility ETF (QQLV) checks those boxes.
QQLV, which turns a year old in December, follows the Nasdaq Low Volatility Index. That’s a “low vol” representation of the widely observed Nasdaq-100 Index (NDX). The components are selected based on trailing 12-month volatility traits.
That may imply a lack of glamour relative to traditional NDX-tracking ETFs. But when called upon, QQLV delivers the goods. The ETF is up 1.61% over the past month. That period has been tricky to navigate, though not exceptionally volatile by historical standards. QQLV can be additive to portfolios when headline risk rises or market participants get a case of the jitters.
Understanding QQLV Plumbing
Low volatility ETFs such as QQLV are positioned as, not surprisingly, volatility reducers. But a case can be made that these products are also stability enhancers. That’s because an emphasis on stable companies is where low volatility investing can shine. That’s been true with QQLV.
“Low-volatility investing focuses on providing returns similar to the broader market over time with less volatility — a smoother ride. Stocks with stable revenues and earnings are also less susceptible to recessions and other macroeconomic events. Low-volatility stocks tend to hold up better when markets decline rapidly, but they may lag during strong market rallies,” according to Fidelity.
The above commentary is part of the education process with the low volatility factor. It’s one investors considering ETFs like QQLV shouldn’t gloss over because they could be left disappointed. Said another way, a key element in low volatility investing isn’t capturing 100% of a bull market’s upside, but exposing investors to less downside when the broader market retreats.
“During market declines, low-volatility portfolios tend to experience smaller drawdowns, providing the benefit of compounding positive excess returns,” added Fidelity.
Think of QQLV through the lenses of consistency, stability, and addition by subtraction. By siphoning off volatility and reducing exposure to big drawdowns, the ETF can be additive to long-term returns and appealing to a broad swath of investors.
“A low-volatility investment strategy aims to reduce risk and provide a more consistent return over time by focusing on investments with lower price fluctuations. This approach can be particularly appealing to conservative investors, retirees or anyone looking to preserve capital while still achieving modest growth,” according to SmartAsset.
For more news, information, and strategy, visit the ETF Education Content Hub.
