Amid talk about strength in cyclical stocks and the growth and momentum factors performing well this year, some investors may be taking their eyes off low volatility exchange traded funds. However, some “low vol” ETFs are making new highs.
That includes the Fidelity Low Volatility Factor ETF (FDLO), which hit a new high last Friday. The low volatility factor has proven to help investors capture growing markets while limiting drawdowns during periods of increased volatility to generate improved risk-adjusted returns over the long haul.
Market segments will perform differently during various economic cycles, and as the U.S. may be heading toward the late business cycle, exchange traded fund investors should consider which areas could drive returns or increase portfolio risks. While low-volatility exchange traded funds may not outperform in a strong bull rally over the short-term, the strategy’s ability to hedge downside risk may be worth it over the long run.
FDLO, which debuted in September, holds large- and mid-cap U.S. companies that exhibit lower volatility than the broader market. Holdings include those that show historically low volatility of returns, low beta (a measure of market sensitivity) and low earnings volatility.