A presidential election, perhaps the most contentious on record, is just weeks away and that is as good of a reason as any for investors to embrace quality and dial back risk. The FlexShares US Quality Low Volatility Index Fund (NYSE: QLV) is a prime example of an exchange traded fund that checks those boxes.
QLV follows the Northern Trust US Quality Low Volatility Index. The ETF’s benchmark employs a quality screen to provide exposure to high-quality companies with lower absolute risk, thereby limiting potential future volatility. The quality screen analyzes a broad universe of equities based on key indicators such as profitability, management efficiency, and cash flow, and then excludes the bottom 20% of stocks with the lowest quality score. The index is then subject to the regional, sector, and risk-factor constraints, in order to manage unintended style factor exposures, significant sector concentration, and high turnover.
QLV merits consideration today because, as history has taught investors time again, what’s heard on the campaign trail and what’s reality are usually two different things.
“Promises and proposals made on the campaign trail offer an indication of a candidate’s intentions, but bureaucracy, compromise, lobbying and politics help shape the reality once in office. At the same time, markets don’t always behave as conventionally expected,” according to BlackRock.
QLV’s Low Volatility
It doesn’t matter who wins the presidential election come November, investors could be in for a wild ride of volatility. If September’s market swings were akin to an aftershock, then November could bring the big one.
QLV integrates rigorous fundamental analysis through a quality screen of US-based companies which can be viewed as a potential means to mitigate future volatility. FlexShares believes this is different than other low volatility funds that may utilize only historical return and/or correlation data in hopes the lower volatility will carry forward.
As BlackRock points out, investing for a particular result, politics included, is a “fool’s errand.” Investors can avoid that mistake with QLV.
“We believe increased cash on the sidelines could make a return to stocks as election and coronavirus-related uncertainty abates and particularly as stock valuations appear attractive versus bonds. With interest rates at historic lows, and poised to stay there for some time, equities are a relative bargain and can be a compelling option for growth, value and income seekers,” notes BlackRock.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.