As the dust settles from the bank rescues of First Republic Bank and Credit Suisse, the effects could be far from over. As such, more volatility could be ahead for investors if the banking sector proves to be on shakier ground than originally anticipated.
It’s not just the banking sector that’s injecting a healthy dose of fear for investors. An obvious fear inducer is the threat of a recession as the U.S. Federal Reserve tries to wrestle with inflation and adjust interest rate policy without upsetting economic growth.
“Sanguine stock investors are at risk of being rocked by volatility during the rest of 2023 as concerns about a recession intensify, Goldman Sachs Group Inc. strategists say,” Bloomberg reported.
The banking sector woes only add another wrinkle to another year of volatility, even while the major stock market indexes are trending higher. Still, it’s not stopping investors from piling into safe haven assets like gold or bonds.
“Stress in the banking sector and weaker economic data have increased the potential for bigger moves in the second quarter, the team led by Christian Mueller-Glissmann wrote in a note,” the report said further. “The strategists said a Goldman model assessing a combination of macro-economic factors, market indicators and broader uncertainties signals a 54% chance of high volatility for the S&P 500, against a 39% chance that moves will be milder.”
Mute the Volatility With FLLV
While safe haven assets present an option for investors to quiet the market noise and mute the volatility, there are also options in exchange traded funds (ETFs) that offer baked-in volatility protection. One such option is the actively managed Franklin U.S. Low Volatility ETF (FLLV).
Based on its general fund description, FLLV seeks capital appreciation with an emphasis on lower volatility than the broader equity market, as measured by the Russell 1000® Index. The active management strategy offers dynamism to the fund, allowing for portfolio managers to adjust the holdings of FLLV based on market conditions.
As of April 12, FLLV holds 84 positions in various sectors, giving the fund an element of diversification and minimizing concentration risk. All of its holdings don’t include a weighting of over 2%, and spreads across a broad array of sectors, including information technology, healthcare, and financials, to name a few.
In the current market environment, investors are also wary of cost-effectiveness amid these times of high inflation. That said, FLLV has a low expense ratio of 0.29%, which is a bargain given its active management.
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