The S&P 500 slid 9% last week, and some other widely followed domestic equity gauges are now in bear market territory. So it’s understandable many market participants believe there’s nowhere to hide as trade tariffs take a toll on risk assets. However, there are avenues for investors to find some protection. Enter ETFs dedicated to the low-volatility factor, including the Invesco QQQ Low Volatility ETF (QQLV ).
The fund, one of the newest members of this category, shed 5% last Friday, confirming the ETF isn’t perfect. But even with that drop, the Invesco ETF topped the S&P 500 on a weekly basis and the fund remains well ahead of that index on a year-to-date basis.
As its name implies, QQLV is a member of Invesco’s famed QQQ suite of ETFs. It follows the low volatility derivative of the Nasdaq-100 Index (NDX). But even with those ties, QQLV is a far cry from the more well-known NDX-tracking ETFs. The difference is easy to understand: QQLV’s index holds 25 of the NDX members with the lowest trailing 12-month volatility. These days, that methodology could be a recipe for success.
QQLV Defensive Posture Is Alluring
As is the case with many low volatility ETFs, QQLV is heavily allocated to the consumer staples sector. That group, which accounts for more than a quarter of the fund’s weight, proved somewhat durable amid last week’s broader market calamity.
Just one large-cap staples name — Target (TGT) — performed worse than the broader market through April 3. That wasn’t a problem for QQLV because Target trades on the New York Stock Exchange (NYSE), meaning it’s not eligible for inclusion in QQLV’s index. Moreover, plenty of staples sub-groups could prove insulated from tariffs.
“Many of these industries do not rely on a significant amount of imports for supply or exports for sales,” noted Morningstar equity strategist Kristoffer Inton. “For example, packaged foods companies source much of their inputs domestically or from Canada or Mexico, which were not part of yesterday’s [April 3] tariffs. These companies also derive most of their sales from the US.”
Even with the recent rotation in consumer defensive stocks, some of the names remain undervalued. Morningstar noted that QQLV holding Kraft Heinz (KHC) is among the most attractively valued staples names in its coverage universe.
Although the stock is still considered pricey by some, Costco Wholesale (COST), another QQLV component, outperformed the broader market last week, and is clinging to a small year-to-date gain.
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