Just when investors and analysts thought markets were recovering from a bear market, stocks fell on Tuesday, erasing earlier gains. In a sign that market volatility isn’t going anywhere anytime soon, the S&P 500 dropped 1%, while the Nasdaq Composite declined 1.9%.
CNBC is quoting Independent Advisor Alliance CIO Chris Zaccarelli as saying that we’re “at an inflection point in the economy, where actual spending and economic activity is still positive,” but “consumer confidence and financial conditions (especially interest rates) are indicating a slowdown ahead.”
The consumer confidence index fell to a reading of 98.7, down from 103.2 in May and missing a Dow Jones estimate of 100, amid increased recession fears. The Conference Board said 12-month inflation expectations for its consumer confidence survey were at 8% for June, the highest level in data going back to August 1987.
“This is the environment low-volatility was made for,” said Nick Kalivas, Invesco’s head of factor and core equity product strategy for ETFs. “I would suspect that, given we’re continuing to suffer from economic uncertainty, it should be on top of mind.”
For investors concerned about volatility who don’t want to get whipsawed by unpredictable markets, Invesco has a suite of low volatility ETFs focused on U.S. equities. In addition to its popular Invesco S&P 500 Low Volatility ETF (SPLV ) and the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD ), which both led Invesco’s positive ETF inflows quarter-to-date, the ETF issuer also has the Invesco S&P MidCap Low Volatility ETF (XMLV ), and the Invesco S&P SmallCap Low Volatility ETF (XSLV ).
SPLV selects the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months. Its holdings comprise mainly large-cap to mid-cap companies. Its portfolio of relatively stable stocks means that investors won’t be subjected to sharp moves in the market, especially when things trend lower during a big sell-off.
SPHD meanwhile, is made up of the 50 stocks in the S&P 500 that historically have provided high dividend yields with lower volatility. This makes SPHD an attractive option for investors in a market where stock upside appears to be limited and dividends can offer additional income.
XMLV, which tracks an index of the 80 least volatile stocks culled from the S&P 400 Index, is the mid-cap variation of SPLV. The fund “is likely to have a widely different sector composition compared with a plain-vanilla mid-cap ETF,” said the analyst report on VettaFi’s ETF Database before noting: “It is also more expensive.”
XSLV, the small-cap variation of SPLV, selects the 120 stocks with the lowest realized volatility in the previous year. Per VettaFi’s analyst report, the fund “is likely to have a widely different sector composition compared with a plain-vanilla small-cap ETF. Fees are reasonable for a factor fund, although there are cheaper small-cap options from plain-vanilla rivals.”
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