Growing volatility in U.S. equities is sending investors searching for ways to safeguard portfolio gains, such as allocating to a multifactor ETF.
Volatility increased on global equity markets in the past month, as the VIX hit its highest in nearly seven months on Friday.
While investors have largely seen declines in recent months, broad benchmarks are still up year to date. If investors anticipate the volatility will contrinue, positioning portfolios more defensively to protect achieved gains is a strategy worth consideration.
As investors look to navigate growing volatility, multifactor ETFs that seek out value stocks that exhibit lower volatility can be a strong alternative to market-cap-weighted funds.
Using a Multifactor ETF to Dampen Volatility
A multifactor ETF to consider that enables investors to still participate in the U.S. equity market while limiting downside risk is the (ROUS ). ROUS can enable investors to maintain desired exposure more comfortably during choppy markets.
The multifactor ETF seeks to target desired return-enhancing factors and reduce exposure to unrewarded risk exposures. ROUS is designed to provide exposure to the U.S. equity market with potentially less volatility than traditional cap-weighted indexes.
The ETF seeks to outperform traditional cap-weighted indexes and reduce volatility by 15% over a full market cycle.
Notably, about 75% of ROUS’ holdings demonstrate lower volatility than the Russell 1000 Index.
ROUS seeks to improve diversification relative to a cap-weighted benchmark by reducing concentration risk. Furthermore, the fund focuses on reducing concentration at the sector, market cap, and individual company levels.
ROUS largest holding comprises just 1.5% of the fund by weight. In comparison, the benchmark Russell 1000 value’s largest constituent makes up 3.4% of the index by weight.
ROUS has $452 million in assets under management and charges 19 basis points.
For more news, information, and analysis, visit the Multifactor Channel.
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