The tandem of rising inflation and forthcoming Federal Reserve monetary policy is giving investors more volatility than they can handle, prompting the need for downside protection.
“Another volatile bout of trading on Wall Street ended with a broad pullback for stocks Tuesday, as investors grapple with economic red flags and uncertainty over how aggressive the Federal Reserve will be in fighting rising inflation,” an Associated Press report says.
Technology stocks pulled the majority of the markets down, but the major indexes whipsawed back from session lows. Just before the final bell rang, however, another bout of selling ensued.
“The S&P 500 fell 1.2% after having been down as much as 2.8%,” the report notes. “The benchmark index has been falling steadily all month and is now down 9.2% from the all-time high it set Jan. 3. The Dow Jones Industrial Average slipped 0.2% and the tech-heavy Nasdaq gave up 2.3%.”
Muting the Volatility With SPLV
If the S&P 500 in particular is making investors squeamish, the Invesco S&P 500 Low Volatility ETF (SPLV) can be an ideal solution. The fund is based on the S&P 500® Low Volatility Index and seeks to invest at least 90% of its total assets in common stocks that comprise the index.
The index is compiled, maintained, and calculated by Standard and Poor’s and consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months. Volatility is a statistical measurement of the magnitude of up-and-down asset price fluctuations over time.
The fund’s holdings comprise mainly large-cap to mid-cap companies. As such, investors won’t be using SPLV as an ideal growth option that consists of small-caps where large market moves to the upside could be of benefit when broad markets are trending higher.
However, that’s exactly what SPLV looks to avoid. The portfolio of relatively stable large- and mid-caps means that investors won’t be subjected to sharp moves in the market, especially when things are trending lower during a big sell-off.
“Thanks to this, the fund could be a better choice for those looking for more stability in their portfolio without such big daily moves,” an ETF Database analysis says. “Additionally, it should be noted that this fund will likely outperform in a bear market and underperform broad markets in a bull market, making it a way to bet on the economic growth prospects of the country as well.”
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