Volatility’s been the name of the game this year, ever since Russia invaded Ukraine and the spectre of inflation became a serious, material threat to the global economy. Investors would rightly want to avoid the storm clouds of recession and high rates for as long as possible next year, and may want to consider how a low vol ETF like the American Century Low Volatility ETF (LVOL ) could be the right fit for them in 2023.
While high inflation has brought up memories of the 1970s for many market observers and investors, it may be more like the post-World War II boom and bust cycle, in which supply and demand were thrown for a loop for much of the decade. That was a source of some serious volatility, according to Morgan Stanley Chief Investment Officer Mike Wilson.
The drop in the M2 money supply in particular is one notable indicator for future volatility, with M2 growth down to just 2.5% right now. More broadly, U.S. CEOs are beginning to sound the alarm about economic slowdown or even contraction next year, which would only add to investors’ troubles looking for the right investment to navigate an unstable downturn period.
It may be the right moment for an actively-managed low vol ETF like LVOL, which focuses on market gyration-resistant large caps. For example, LVOL’s largest weights are towards the Coca-Cola Company (KO), Procter & Gamble Company (PG), and Cisco Systems (CSCO), mature firms with size and recognizable brands.
With its active management, LVOL has outperformed the ETF Database Category Average and the Factset Segment Average over one month and three months, with 4% over one month and 3.7% returns over three months. LVOL also charges 29 basis points, a relatively cheaper fee than many of its other active ETF siblings.
While LVOL is still relatively young — it just launched last year — it has largely hit its goals in terms of volatility, not exceeding 20.1% volatility over any of its 20, 50, or 200 day volatility metrics, according to VettaFi. For investors looking to mitigate volatility in the new year, LVOL is one watch to help buoy stressed out equity portfolios.
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