Market volatility is hard to navigate, but certain asset classes can protect your portfolio from a volatile market, such as low-beta ETFs. That said, what would be the best low-beta ETFs to buy right now? Here’s a look at what we consider the best, so you can keep your portfolio safe from the brunt of market volatility.
Best Low Beta ETFs
With a beta score of 0.79, the iShares MSCI USA Min Vol Factor ETF could be one of the best low-volatility ETFs currently on the market.
USMV commands almost $29 billion worth of assets as we speak, but as large as its net assets are, that’s not even its most impressive metric.
That’s because the fund also sees a whopping daily trading volume of 3 million shares while boasting a meager net expense ratio of 0.15%.
Beyond USMV’s low expense ratio, it also boasts an elite management team.
Since its inception on April 10, 2013, USMV has been under the management of arguably one of the world’s leading providers of risk management solutions in BlackRock Fund Advisors.
The USMV fund tracks the MSCI USA Minimum Volatility Index. This is one of the indices that aims to reflect the performance characteristics of a minimum variance strategy applied to the large and mid-cap US equity universe.
Assuming you’re an investor looking for long-term growth and a more conservative approach to investing, it could make sense to opt for USMV.
This is because USMV has a diversified portfolio of low-volatility stocks, most of which are large and mid-cap stocks from the US stock market.
These stocks are diversified but focus on defensive sectors such as consumer staples, health care, and utilities.
The iShares Edge MSCI Min Vol EAFE ETF (EFAV) is the international “sister” of the USMV fund.
This ETF seeks to track the investment results of the MSCI EAFE Minimum Volatility Index, which has a weighting of 100%.
Although it shares similarities to the USMV, the significant difference between the EFAV and the USMV lies in the geographical location of its investments.
EFAV invests in approximately 150 securities from developed markets outside the US and Canada.
Its index measures the metrics of these international equity securities that have lower volatility relative to the MSCI EAFE Index. The fund is non-diversified and invests a maximum of 20% of its total assets in a single issuer.
Since its inception in October 2011, EFAV has been under the management of Greg Savage. His management style demands that the fund invests at least 80% of its assets at any given time to maximize returns.
These assets are generally put towards the component securities of the index as well as investments that have economic characteristics that are substantially identical to the component securities of the index.
It’s safe to say that EFAV was created to reduce volatility and minimize risk by investing in stocks that have low correlations with each other and with the general market.
Its expense ratio is below average compared to funds in the Foreign Large Blend category. EFAV has an expense ratio of 0.20%, which is 42% lower than its category.
Other important metrics include an average daily trading volume of almost 2 million shares and a net asset value of $6.97 billion. The fund has a beta of 0.71.
Invesco S&P 500 Low Volatility ETF (NYSEARCA: SPLV)
The Invesco S&P 500 Low Volatility ETF is one of the big players that tracks the S&P 500 Low Volatility Index.
This index measures the performance of the 100 least volatile stocks in the S&P 500. Some which include popular companies like T-Mobile US, Coca-Cola, Leidos Holdings, McDonald’s, Pepsico, and Incyte.
The index benchmarks low volatility or low variance strategies for the US stock market.
The SPLV’s passive management style prefers to invest at least 90% of its total assets in the S&P 500 Low Volatility Index component securities.
Because of the power of its management company and the $10.14 billion worth of net assets, SPLV is another established fund. But it’s one of the established funds on this list you can only find on the New York Stock Exchange (NYSE).
SPLV charges an expense ratio of 0.25% and has returned an average of 10.7% since its inception. It also has 103 holdings, with its top ten holdings representing 12.7%.
The fund also has 2.0% of foreign stock and 0% of preferred stock.
Passively managed ETFs appeal to both seasoned and new investors because of their low cost, transparency, flexibility, and tax efficiency. So it’s safe to say that the SPLV is an excellent vehicle for long-term investors. The fund has a beta of 0.73.
JPMorgan Ultra-Short Income ETF (NYSEARCA: JPST)
With $22.46 billion worth of assets under its command, the JPMorgan Ultra-Short Income ETF (JPST) holds the second-highest net asset value on this list. But JPST isn’t like the other low-vol funds you’ll find on the market.
This is because most of its funds are in cash, 56.2% to be precise. The rest of the allocation is in foreign and domestic bonds, which take up 17.9% and 25.9%, respectively.
JPST was launched in 2017, and David Martucci immediately spearheaded its management. The fund’s primary benchmark is the ICE BofA US 3M Trsy Bill TR USD Index, with a weighting of 100%.
Its benchmark is composed of US Treasury bills and other short-term debt obligations.
The JPST seeks to expose investors to a portfolio of high-quality, short-term fixed-income securities.
Although risk-averse investors have been attracted to the JPST lately, there is some interest-rate risk because higher rates make older bonds with lesser payouts less desirable and, thus, less valuable.
Additionally, as the older bonds mature, a sizable portion of the ETF’s funds has already been transferred into higher-yielding bonds that have recently come to market.
The end result is a fund with a current yield of 2.5 percent, which is much higher than the current average dividend stock and has significantly lower volatility.
JPST’s expense ratio is low compared to the Ultrashort Bond category funds. JPST has an expense ratio of 0.18%, which is also low compared to other ETFs in the Ultrashort Bond category. The fund has a beta of 0.10.
PIMCO 1-5 Year US TIPS Index ETF (NYSEARCA: STPZ)
If you’re looking for a low-beta ETF in the fixed-income markets and the JPST ETF doesn’t appeal to you, then you can look no further than the PIMCO 1-5 Year US TIPS Index ETF (STPZ).
Just like the JPST ETF, STPZ has a short-term focus with bonds that mature in five years or less. But, the STPZ fund focuses more on TIPS, rather than corporate bonds.
If you aren’t familiar with TIPS, they are Treasury Inflation-Protected Securities. TIPS are a unique type of government bond issued by the US Treasury.
TIPS are explicitly designed to protect you against inflation.
Unlike other Treasury securities, where the principal is fixed, the principal of a TIPS can go up or down over its term.
When the TIPS matures, you get the increased amount if the principal is higher than the original amount.
STPZ has a net asset value of $1.31 billion. The fund also has the lowest average daily trading volume of approximately 258,484 shares.
The 52-week range of STPZ is incredibly narrow, between roughly $52 and $56 per share, so if you want fewer bumps in the road, this slow and steady inflation-pegged ETF could be worth a look.
STPZ has an expense ratio of 0.20%, which is 30% lower than its category, and a beta of 0.50.
Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA: SPHD)
The Invesco S&P 500 High Dividend Low Volatility ETF has the highest beta on this list at 0.89. Peter Hubbard has been in charge of managing it at Invesco since October 18, 2012.
The fund tracks the S&P 500 Low Volatility High Div TR USD and is weighted at 100%.
Under Hubbard’s management, SPHD invests at least 90% of its total assets in the underlying index’s securities.
The fund has returned 10.7% per year over the past decade, and recently, in November 2022, SPHD returned 7.0%. SPHD has an R-squared of 71% and a standard deviation of 22.2%. It has an average total risk rating.
SPHD has a net asset value of $3.68 billion. The fund’s top 10 holdings represent 27.1%, while the remaining 41 represent the rest.
With a total of 51 holdings, there’s an inevitable increase in risk because it’s challenging to turn around if a few stocks take a dramatic turn in the wrong way.
The screening process, which limits attention to value-oriented equities with historically low volatility profiles, may give investors some peace of mind because these aren’t the kinds of businesses that frequently experience unanticipated drops in stock price.
Its domestic and foreign stock split is 98.5% and 1.7%, respectively.
Are Low Beta ETFs a Good Investment?
We’ve been stuck in a downturn all year, with the S&P 500 falling as low as 21% compared to its 2021 highs.
Coupled with the market’s overall decline, tons of equities have been undergoing erratic price movements. That streak of volatility may continue into 2023, leaving you at risk of losing a large chunk of your portfolio if you stay invested in high-volatility equities.
With that in mind, it could make sense to invest in exchange-traded funds with low volatility.
That way, you’ll be able to ensure your portfolio risk is minimized going into 2023, allowing you to navigate whatever the stock market throws at you with calmness and relative peace of mind.
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