President Trump’s tariff plans and signs of economic slowdown have made investors jittery, leading to risk-off trade. The three major indices are on pace to decline this month. Against such a backdrop, investors seeking to remain invested in the equity world may consider low-volatility ETFs (read: Time for Defensive Sector ETFs?).
Funds such as iShares MSCI USA Min Vol Factor ETF USMV, Invesco S&P 500 Low Volatility ETF SPLV, Invesco S&P 500 High Dividend Low Volatility ETF SPHD, SPDR SSGA US Large Cap Low Volatility Index ETF LGLV and Fidelity Low Volatility Factor ETF FDLO can be solid options for investors in the current choppy market.
Low-volatility ETFs have the potential to outpace the broader market in an uncertain environment, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. These funds allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.
In a post on Truth Social, Trump announced that the proposed 25% tariffs on Mexico and Canada would take effect on March 4 after the one-month moratorium ends. He pledged to double tariffs on China with "an additional 10%” tariff.
Early this month, Trump announced 25% global tariffs on steel and aluminum imports, which are expected to take effect on March 12. He also signed plans for reciprocal tariffs but delayed their implementation until April to allow his administration to negotiate on a one-by-one basis with countries that could be impacted (read: ETFs to Win/Lose as Trump Imposes 25% Tariffs on Steel and Aluminum).
Further, Donald Trump threatened to impose 25% tariffs on automobile, semiconductor and pharmaceutical imports as soon as April. He also threatened to levy new tariffs on Europe and is considering imposing 25% tariffs on international lumber and wood products over the next month or sooner, with more to come.
Slowdown ConcernsThe bouts of upbeat data have sparked fears of an economic slowdown. U.S. business activity stalled in February, while consumer sentiment dropped. The S&P Global’s flash U.S. Composite PMI Output Index, which gauges both manufacturing and services, dropped from 52.7 in January to 50.4, marking its weakest level since September 2023. The University of Michigan consumer sentiment index fell to a 15-month low in February, whereas the Conference Board’s Consumer Confidence Index saw the biggest monthly decline since August 2021. Retail sales slumped the most in January in nearly two years.
Homebuilder sentiment hit a five-month low in February. Concerns have built up in the homebuilder space that tariffs would raise the cost of building materials, including lumber and appliances, leading to elevated home prices and reduced affordability. U.S. pending home sales dropped to a record low in January.
Inflationary pressure has been rising with the tariffs in place. Inflation picked up in January, fueled by higher grocery, gasoline and rent prices. Consumers' 12-month inflation expectations deteriorated to 4.3%, the highest reading since November 2023, from 3.3% in January. Over the next five years, consumers expect inflation to be 3.5%, the highest since 1995, compared with 3.2% in January, according to the latest survey (read: Inflation Picks Up in January: Dividend ETFs to Buy).
iShares MSCI USA Min Vol Factor ETF (USMV)
iShares MSCI USA Min Vol Factor ETF offers exposure to stocks that have lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. It holds 182 stocks in its basket, with none accounting for more than 1.7% of the assets. Information technology takes the top spot at 26%, whereas financials, healthcare and consumer staples round off the next three spots.
With an AUM of $24 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 2 million shares. USMV has a Zacks ETF Rank #2 (Buy), with a Medium risk outlook (read: Trade War Heats Up: ETFs to Shield Your Portfolio).
Invesco S&P 500 Low Volatility ETF (SPLV)
Invesco S&P 500 Low Volatility ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index and holds 102 securities in its basket. Invesco S&P 500 Low Volatility ETF is widely spread across sectors, with financials, utilities, industrials and consumer staples healthcare receiving double-digit exposure each.
Invesco S&P 500 Low Volatility ETF has amassed $7.5 billion in its asset base and trades in a solid volume of 1.5 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
Invesco S&P 500 High Dividend Low Volatility ETF offers exposure to 52 stocks traded on the S&P 500 Index that have historically provided high dividend yields and low volatility. It follows the S&P 500 Low Volatility High Dividend Index. Invesco S&P 500 High Dividend Low Volatility ETF is widely spread across sectors, with real estate, utilities and consumer staples receiving double-digit exposure each.
Invesco S&P 500 High Dividend Low Volatility ETF has amassed $3.4 billion and charges 30 bps in annual fees. The fund trades in an average daily volume of 455,000 shares and has a Zacks ETF Rank #3 with a Medium risk outlook.
SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV)
SPDR SSGA US Large Cap Low Volatility Index ETF follows the SSGA US Large Cap Low Volatility Index, which utilizes a rules-based process that seeks to increase exposure to stocks that exhibit low volatility. It holds 163 stocks in its basket, with key holdings in financials, industrials, real estate and utilities.
With an AUM of $875 million, SPDR SSGA US Large Cap Low Volatility Index ETF charges 12 bps in annual fees and trades in an average daily volume of about 30,000 shares.
Fidelity Low Volatility Factor ETF (FDLO)
Fidelity Low Volatility Factor ETF offers exposure to stocks with lower volatility than the broader market by tracking the Fidelity U.S. Low Volatility Factor Index. It holds 131 stocks in its basket, with key holdings in information technology, financials, consumer discretionary and healthcare.
Fidelity Low Volatility Factor ETF has garnered $1.5 billion in AUM and trades in an average daily volume of 90,000 shares. FDLO charges 16 bps in annual fees from investors.
These products could be worthwhile for low-risk-tolerance investors and have the potential to outperform the broader market, especially if volatility persists.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
Fidelity Low Volatility Factor ETF (FDLO): ETF Research Reports
SPDR SSgA US Large Cap Low Volatility Index ETF (LGLV): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.