6 Low-Beta ETFs To Bet On Amid Market Volatility

Image: Bigstock

After a huge rally, Wall Street was caught in a vicious circle of trading earlier this month. This is especially true, as rising commodity prices have sparked inflation fears making investors jittery.

Additionally, bouts of the latest data indicate that the strong economic recovery might be slowing. U.S. consumer confidence fell slightly in May for the first time this year as indicated by the Conference Board’s index. New home sales dropped in April as the surge in home prices threatened to slow the housing market momentum amid a tight supply. Retail sales growth paused last month after a solid 10.7% surge in March, the second-largest increase on record.

Hiring also slowed in April amid a shortage of workers. The U.S. economy added 266,000 jobs in April, far below economists’ expectations of 1 million while the unemployment rate nudged up from 6% to 6.1%.

However, the wider rollout of vaccinations, massive stimulus, and pandemic restriction rollbacks are instilling confidence among the sectors poised to benefit from the recovering economy. The combination has been powering activities across all sectors and categories, resulting in increased consumer spending. In fact, the U.S. economy grew 6.4% annually in the first quarter, representing the second-strongest increase since 2003 and is expected to top 7% this year, which would be the fastest since 1984, per several economists. This would follow the 3.5% contraction in 2020, which was the worst performance in 74 years. Moreover, the astounding improvement in corporate earnings also bodes well for the stocks.

As a result, investors may want to remain invested in the equity world but at the same time seek protection from a downside. This could be easily achieved by investing in low-beta products.

Why Low Beta?

Beta measures the price volatility of stocks relative to the overall market. It has a direct relationship to market movements. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.

That said, low-beta products exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market crumbles. Given lesser risks and lower returns, these are considered safe and resilient amid uncertainty. However, when markets soar, these low-beta funds experience lesser gains than the broader market counterparts and thus lag their peers.

With the help of etfdb.com, we have highlighted six low-beta ETFs from different categories that could be intriguing options for investors amid the current market turbulence. All the funds offer exposure to a number of sectors and have AUM of more than $50 million, indicating their good tradability.

Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) – Beta: 0.33

This actively managed fund seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. It tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility, and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework. The fund has accumulated $152 million in its asset base and charges 39 bps in fees per year from investors. Volume is good, exchanging 111,000 shares a day on average.

Nationwide Risk-Managed Income ETF (NUSI - Free Report) – Beta: 0.33

This ETF targets high income with lower risk as it uses a rules-based options trading strategy. It seeks to provide investors with a measure of downside protection in falling markets and the potential for upside participation in rising markets. With AUM of $302.1 million, it charges 68 bps in annual fees and trades in an average daily volume of 111,000 shares.

WBI BullBear Value 3000 ETF (WBIF - Free Report) - Beta: 0.55

This fund is actively managed and invests in large-cap domestic and foreign securities with consistent fundamentals and strong value characteristics. WBIF has amassed $53.9 million and charges 1.04% in annual fees. Volume is good as it exchanges 16,000 shares in hand per day on average.

FT Cboe Vest Fund of Buffer ETFs (BUFR - Free Report) - Beta: 0.56

This ETF seeks to achieve its investment objective by providing investors with U.S. large-cap equity market exposure while limiting downside risk through a laddered portfolio of four FT Cboe Vest U.S. Equity Buffer ETFs. It has accumulated $180.5 million in its asset base since its inception in August 2020 and charges a higher 1.05% in expense ratio. The fund trades in an average daily volume of 99,000 shares.

Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) - Beta: 0.66

This ETF follows a “covered call” or “buy-write” strategy, in which the fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index. It tracks the CBOE Nasdaq-100 BuyWrite V2 Index. The product has $2.7 billion in AUM and an expense ratio of 0.60%. It trades in an average daily volume of 1.8 million shares.

Invesco S&P 500 Low Volatility ETF (SPLV - Free Report) – Beta: 0.69

This 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 charges 25 bps in annual fees. SPLV has amassed $8.2 billion in its asset base and trades in heavy volume of around 3.3 million shares a day on average. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Bottom Line

Investors should note that these products are not meant for generating outsized returns. Instead, these provide stability to the portfolio, protecting the initial investment. In particular, these products could be worthwhile for low risk-tolerant investors looking to safeguard their portfolio in the current market environment and seeking outperformance.

Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.