The low vol factor and related ETFs held up their ends of the bargain during a bumpy first quarter and following “Liberation Day” turbulence. With seven months remaining in 2025, investors would do well to remember the benefits of this investing style.
The Invesco QQQ Low Volatility ETF (QQLV), which is one of the newer ETFs in the category, is an idea to consider for market participants looking to take some of the edge off their portfolios. QQLV has proven its worth this year as highlighted by a gain of 6.29%. That’s one of the better showings among large-cap “low vol” strategies.
Add to that, the ETF returned an admirable 2.73% over the past month. That’s a period in which stocks rebounded as trade news improved. And that’s a solid near-term performance. That’s particularly so when considering minimum volatility ETFs often lag the broader market when stocks rally in strong fashion.
Don’t Forget QQLV
Given the recent resurgence of riskier assets, including mega-cap growth stocks, some investors may be apt to think the environment is entirely sanguine and it’s appropriate to dismiss funds such as QQLV. Experienced market participants know better.
When it comes to the White House’s trade policy — which has loomed large over markets this year — things can change on a dime. That implying QQLV could be in fashion for the remainder of this year.
“Such relative performance patterns are not surprising: the strong defensive properties of low volatility strategies tend to be particularly well pronounced in times of heightened market volatility, as is the case at present,” noted UBS Asset Management. “While low volatility strategies tend to lag market cap weighted indexes in ‘bull market’ times, they tend to provide good downside protection in weak markets, and, over the long term, they would typically provide similar returns as the market on average but with materially lower volatility.”
As UBS points out, standard low volatility indexes typically emphasize optimization of mean variance or “heuristic metrics.” In the case of QQLV, the fund follows an reduced volatility offshoot of the Nasdaq-100 Index (NDX), with the ETF’s components being the 25 NDX names with the lowest trailing 12-month volatility. The variance cohort — of which QQLV is a member — is arguably a cleaner interpretation of low volatility. And it’s one that’s tended to perform well over time.
You've Heard It Before: Timing Markets Is Hard
And it when it comes to time, it might be worth holding onto QQLV today. That’s because pinpointing when it’s right or wrong to enter and exit low volatility can be a trying task.
“Timing markets is hard. Instead of trying to predict when to enter/exit a particular index strategy, investors might want to consider holding a combination of pro-cyclical (e.g., value factor) and defensive (e.g., low volatility, quality factor) equity factor index strategies over the long term,” concluded UBS.
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