Last Friday’s 500-point drop in the Dow Jones Industrial Average amid the coronavirus outbreak fears served as a reminder to investors that they should consider low volatility ETFs. Investor fears propagated a drop in the Dow that practically eliminated the gains attained during the whole month of January.
In an effort to contain the coronavirus outbreak, the World Health Organization deemed the virus a global health emergency, which comes after the U.S. confirmed its first case of human-to-human transmission. This virus has already killed as many as 170 people in China, and has spread to 18 countries.
“The outbreak of the coronavirus has added another headwind to the near-term outlook for stocks,” said Peter Berezin, chief global strategist at BCA Research, said in a note. “Viruses often become less lethal as they mutate because a virus that kills its host is also a virus that kills itself. Unfortunately, in a world of mass travel, a virus can spread across the globe before it has time to lose potency.”
The virus has already infected the capital markets with volatility since it first broke news. As more information regarding the virus makes headlines, the markets have been reacting as such, giving investors a rollercoaster ride.
Low Volatility Options
In 2020, investors are looking to play more defense against volatility, but at the same time, don’t want to do so at the expense of higher costs–a case for a pair of low volatility ETFs with low expense ratios– Invesco S&P 500 Low Volatility ETF (SPLV) and the Invesco S&P MidCap Low Volatility ETF (NYSEArca: XMLV).
SPLV seeks to track the investment results of the S&P 500 Low Volatility Index. Strictly in accordance with its guidelines and mandated procedures, the index provider selects 100 securities from the S&P 500 Index for inclusion in the underlying index that have the lowest realized volatility over the past 12 months as determined by S&P DJI.
As for XMLV, it seeks to track the investment results of the S&P MidCap 400 Low Volatility Index. Strictly in accordance with its procedures and mandated guidelines, the index provider selects for inclusion in the underlying index the 80 securities that it has determined have the lowest volatility over the past 12 months out of the 400 medium capitalization securities that are contained in the S&P MidCap 400 Index.
A few other ETFs to consider:
- iShares Edge MSCI Minimum Volatility USA ETF (USMV)
- iShares Edge MSCI Min Vol EAFE ETF (BATS: EFAV)
- iShares Edge MSCI EM Minimum Volatility UCITS ETF (BATS: EEMV)
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