Volatility took center stage last week, with increasing investor interest in strategies enabling investors to express a view on a market beset by a simmering bank crisis and, of course, the Fed’s ongoing war on inflation. That said, not all investors want to ride a leveraged or short strategy tied to the Chicago Board Options Exchange’s CBOE Volatility Index, or the VIX, and instead may to consider a low volatility ETF like the (LVOL ).
Volatility-focused equity ETFs have been the subject of conversation at VettaFi lately, with the available suite of strategies including both active and passive offerings. Either way, low volatility strategies offer investors funds that look to x out some of that market chop, with the VIX hitting its highest point since October earlier this month.
For those who believe that the bank crisis as markets have experienced it may just be the tip of the iceberg, with the issue stemming in part from the losses banks have incurred on many of their Treasury and other fixed income holdings. LVOL’s active approach could make it an interesting low volatility ETF should the banks, or some other leveraged sector, have to deal with the consequences of rising rates.
LVOL has seen its performance spike over the last week, returning 139 basis points (bps) compared to -236 bps performance over the last month overall. LVOL invests in large cap U.S. equities that are less susceptible to market fluctuations, and given its relatively narrow focus on less volatile areas, would work well as a complement to a core holding. Charging just 29 bps, it has seen just 15.1% volatility over the last 20 days, meeting its goal of offering limited fluctuations to its holders.
LVOL launched back in January 2021, and while that seems like just yesterday, the low volatility ETF is approaching its three-year mark milestone as an ETF next year. With this year’s choppiness not yet done, and challenges remaining on the horizon, LVOL may be an option for those investors who want active management at a reasonable fee in the weeks and months ahead.
For more news, information, and analysis, visit the Core Strategies Channel.