It's Time to Prepare Client Portfolios for Higher Volatility

Stocks have largely held steady over the past month, but the market saw higher volatility on Friday.

The past month has seen very low volatility, at levels not seen since before the COVID-19 crash in 2020. The Cboe Volatility Index was up 7% on Friday, however, as stock options, stock index futures, and stock index options all expired, a quarterly event known as triple-witching.

Major indexes were in the red on Friday, with the S&P 500 down 1.2% and the Nasdaq -00 down 1.8% in midday trading. All U.S. equity sectors fell, with more defensive sectors like utilities and financials holding up better than the growthier communications, consumer discretionary, and technology sectors.

See more: Multifactor ETFs Helped Protect Gains Last Month

With notable market events to look forward to in the coming weeks, higher volatility may be here to stay.

“With the Fed meeting next week and earnings season upon us, the market could get more volatile. Advisors should be mindful of the risks they are taking,” said Todd Rosenbluth, head of research at VettaFi.

The Federal Reserve’s Federal Open Market Committee (FOMC) will meet next Tuesday and Wednesday to discuss interest rates. Shortly after, markets will begin to anticipate and digest third-quarter earnings results.

Use Multifactor ETFs to Mitigate Effects of Higher Volatility

For risk-averse clients, advisors can prepare portfolios for higher volatility by allocating to a multifactor ETF. A defensive value ETF like the Hartford Multifactor US Equity ETF (ROUS) can help investors maintain desired exposure more comfortably during choppy markets.

ROUS seeks to target desired return-enhancing factors and reduce exposure to unrewarded risk exposures. The ETF sims to provide more balanced exposure to U.S. large-caps while dampening volatility compared to benchmarks.

The ETF seeks to outperform traditional cap-weighted indexes and reduce volatility by 15% over a full market cycle.

For more news, information, and analysis, visit the Multifactor Channel.

Investing involves risk, including the possible loss of principal.

This article was prepared as part of Hartford Funds’ paid sponsorship with VettaFi. Hartford Funds is not affiliated with VettaFi and was not involved in drafting this article. The opinions and forecasts expressed are solely those of VettaFi. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, a recommendation for any product, or as investment advice.