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Four Low-Volatility ETFs to Hedge Your Portfolio


Some allocation to low-volatility stocks and ETFs in a portfolio will be beneficial to investors.

Third quarter results reported so far are lackluster in most cases and disappointing in many. Adding to the woes are the bleak guidance for the fourth quarter and beyond provided by a large number of companies.

On the other hand, recent US economic data has been largely positive, particularly in the areas of housing and consumer confidence. Improving macro picture and the central banks' support will continue to make the market somewhat resilient.

And while China is showing some signs of bottoming out, the outlook for the eurozone is still very cloudy.

Further, in view of a very close presidential race and the looming fiscal cliff, the investors are hesitant to make any big moves in the market.

The market may thus continue to be volatile in the coming weeks. The investors should therefore look at some of the low-volatility ETFs that are ideal for such stormy markets as these products reduce the portfolio volatility and limit the downside risk.

Many academic studies have shown that low-volatility stocks outperform the broader market over longer period and they consistently deliver better risk-adjusted returns.

Low-volatility ETFs are suitable not only for short-term but also for longer-term as the volatility in the financial markets is expected to stay at elevated levels compared to historical levels, given extraordinary macroeconomic conditions prevailing for the past few years and unconventional monetary tools employed by the central banks all over the world.

Thus some allocation to low-volatility stocks and ETFs in the portfolio will be beneficial to the investors. We may however add that these ETFs will lag the broader market in strong bull periods.

PowerShares S&P 500 Low Volatility (NYSEARCA:SPLV) (SPLV)

SPLV tracks the S&P 500 Low Volatility Index (INDEXSP:SP500LVOL), which consists of 100 stocks from the S&P 500 Index (INDEXSP:.INX) with the lowest realized volatility over the past 12 months.

ETF currently has an attractive 30 day SEC yield of 3.00%, while it charges an expense ratio of 0.25% per year.
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No positions in stocks mentioned.
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