Investors not accustomed to dealing with extreme ebbs and flows of the market got a rude awakening during the pandemic sell-offs last year. They can help prevent those swings with ETFs that focus on minimizing volatility.
First up is the iShares Edge MSCI Minimum Volatility USA ETF (USMV). The fund seeks the investment results of the MSCI USA Minimum Volatility (USD) Index, which measures the performance of large- and mid-capitalization equity securities listed on stock exchanges in the U.S. that, in the aggregate, have lower volatility relative to the broader U.S. equity market.
“This fund can be used as an alternative to broad-based domestic equity funds, though the shallow nature of the underlying portfolio may be a concern,” an ETF Database analysis said. “Perhaps a better use would be as a way to dial down the overall risk of an equity portfolio, essentially allowing investors to scale back their downside loss potential while still maintaining some up side.”
“USMV is appealing in the sense that it allows investors to achieve cheap, easy exposure to a strategy that would be difficult and time consuming to implement under the ‘do it yourself’ methodology the expense ratio is extremely low given the methodology employed, and the strategy offered can be a simple but effective way to fine tune the overall risk of a portfolio.”
Muting the S&P 500 Volatility
Another ETF to consider is the Invesco S&P 500 Low Volatility ETF (SPLV). SPLV seeks to invest at least 90% of its total assets in common stocks that comprise the Index, which is compiled, maintained, and calculated by Standard and Poor’s and consists of the 100 stocks from the SP 500 Index with the lowest realized volatility over the past 12 months.
“The fund is probably one of the safest in the equity world as the companies on this list are very unlikely to go under unless there is an apocalyptic event in the economy,” ETF Database explained. “However, these securities are unlikely to grow very much either as they are already pretty large and have probably seen their quickest growing days in years past, but most do pay out solid dividends which should help to ease the pain of this realization. Thanks to this, the fund could be a better choice for those looking for more stability in their portfolio without such big daily moves.”
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