Volatility is back in the markets, causing some investors to fret over a potential market crash, according to the Allianz Life Q3 Quarterly Market Perceptions Study.
“Concern over the Delta variant, soaring inflation and major swings in the market are creating a perfect storm for Americans,” a Kiplinger article notes. “In fact, the Allianz Life Q3 Quarterly Market Perceptions Study found that people are more worried that a big market crash is in on the horizon than they have been all year. At the same time, nearly seven in 10 (69%) say they are worried that the increase in COVID infections will cause another recession.”
One way to ease investor fears is to help mute the volatility, which can come in a variety of ways such as diversifying assets or hedging risk with counterplays against current positions. Another way is via low-volatility exchange trade funds (ETFs) that take away all the guesswork.
Countering Volatility in the U.S.
For an all-encompassing, U.S. equities-focused fund, ETF investors can start with the FlexShares US Quality Low Volatility Index Fund (QLV ). Getting a low-volatility component built into the ETF doesn’t come at a high cost with the fund’s low 0.22% net expense ratio.
QLV seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Quality Low Volatility Index. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to the Northern Trust 1250 Index, a float-adjusted market capitalization-weighted index of U.S.-domiciled large- and mid-capitalization companies.
Volatility Protection Outside the U.S.
For investors who want to get international exposure but don’t want the volatility of investing in riskier markets, there’s the FlexShares Developed Markets ex-US Quality Low Volatility Index Fund (QLVD ). Per its fund description, QLVD seeks investment results that correspond generally to the Northern Trust Developed Markets ex-U.S. Quality Low Volatility Index.
The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to a broad universe of securities domiciled in developed market countries, excluding the United States. The top three country exposures are currently Japan, Switzerland, and the United Kingdom.
Investors who are looking for more growth potential in emerging markets (EM) but are more risk-averse can look at a fund like the FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE ). The fund seeks investment results that correspond generally to the price and yield performance of the Northern Trust Emerging Markets Quality Low Volatility Index, which is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to a broad universe of securities domiciled in emerging market countries.
It’s an opportune time for QLVE, which can capture upside in emerging markets while limiting volatility, should the dollar continue to gain strength in accordance with the way it has been moving lately. This volatility protection could serve well in 2022 as the U.S. central bank looks to raise rates amid an economic recovery.
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