Market volatility didn’t take a vacation after the long weekend with the major stock market indexes giving investors a roller coaster ride. It’s a reminder that padding portfolios with volatility protection is a must.
“The pain is piling up for equity investors after the long U.S. holiday weekend, with bond yields at levels not seen since early 2020, and oil prices tapping 2014 highs,” MarketWatch reports. “The pace of Federal Reserve monetary policy tightening amid the highest inflation in about 40 years, a bumpy start to the corporate earnings reporting season and pandemic uncertainties are just a few things on the worry list.”
That said, investors looking for baseline volatility protection in the event of the downside can still capture upside when markets rebound. This is available with ETFs such as the FlexShares US Quality Low Volatility Index Fund (QLV).
QLV seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Low Volatility Index. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to the Northern Trust 1250 Index, a float-adjusted market capitalization-weighted index of U.S.-domiciled large- and mid-capitalization companies.
Diversified Exposure Outside the U.S.
For investors looking for international exposure with volatility protection, there’s the FlexShares Developed Markets ex-US Quality Low Volatility Index Fund (QLVD). Per its fund description, QLVD seeks investment results that correspond generally to the Northern Trust Developed Markets ex-U.S. Quality Low Volatility Index.
The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to a broad universe of securities domiciled in developed market countries, excluding the United States. The top three country exposures are currently Japan, Switzerland, and the United Kingdom.
Investors looking for more growth potential in emerging markets (EM) with the same volatility protection can consider the FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE). The fund seeks investment results that correspond generally to the price and yield performance of the Northern Trust Emerging Markets Quality Low Volatility Index, which is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to a broad universe of securities domiciled in emerging market countries.
It’s an opportune time for QLVE, which can capture upside in emerging markets while limiting volatility, should the dollar continue to gain strength. This volatility protection could serve well in 2022 as the U.S. central bank looks to raise rates amid an economic recovery.
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