Low-Beta ETFs To Beat Market Turmoil

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After the best start to the second half, Wall Street is again caught in a nasty web of woes. Fears of an aggressive rate hike by the Fed and global growth concerns have resurfaced.

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 like Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report), Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI - Free Report), ETC 6 Meridian Small Cap Equity ETF (SIXS - Free Report), Pacer Trendpilot Fund of Funds ETF (TRND - Free Report) and Armor US Equity Index ETF (ARMR - Free Report). These funds could be intriguing options for investors amid the current market turbulence.

Jerome Powell recently said that the Fed would need to keep interest rates high enough to slow the economy “for some time” to curb high inflation. While tight monetary policy "for some time" will bring down inflation from its 40-year high, it means slower growth, a weaker job market, and "some pain" for households and businesses.

Money market traders see 87% odds that the Fed will hike rates by 75 basis points in this month's meeting. The Fed has raised its benchmark federal funds rate by 0.75 percentage points at each of its last two meetings to a range of 2.25% to 2.5%.

Bouts of weak economic data across the globe added to global slowdown fears. U.S. mortgage rates touched the highest level in nearly 14 years, signaling that the hot housing market is cooling rapidly. Meanwhile, economic activity in China, the world's second-largest economy, has been declining and the property sector is also suffering. Eurozone inflation for August also rose to another record high.

However, Americans are growing more optimistic about the economy amid falling oil and gasoline prices as well as easing inflation. Consumer confidence rebounded in August after three consecutive monthly declines. Additionally, the economy added 315,000 jobs in August, while the unemployment rate ticked up to 3.7% from 3.5%.

Why Low Beta?

Beta measures the price volatility of stocks relative to the overall market. It has a direct relationship with market movements. A beta of 1 indicates that the price of a 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.

All the above-mentioned funds offer broad exposure to a number of sectors and have an AUM of more than $50 million, indicating their good trading potential.

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

Invesco S&P 500 Downside Hedged ETF is an actively managed fund that seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. Invesco S&P 500 Downside Hedged ETF 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.

Invesco S&P 500 Downside Hedged ETF has accumulated $274.5 million in its asset base and charges 40 bps in fees per year from its investors. Volume is good, exchanging 48,000 shares a day on average.

Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI) – Beta: 0.44

Nationwide Nasdaq-100 Risk-Managed Income ETF targets high-income with a measure of downside protection using a rules-based options trading strategy. It is designed for income-focused investors seeking to lower their exposure to market volatility and minimize the potential for losses during down markets.

With an AUM of $579 million, Nationwide Nasdaq-100 Risk-Managed Income ETF charges 68 bps in annual fees and trades in an average daily volume of 130,000 shares.

ETC 6 Meridian Small Cap Equity ETF (SIXS) - Beta: 0.56

6 Meridian Small Cap Equity ETF is an actively managed ETF that uses a quantitively-driven strategy emphasizing high-quality, small-cap stocks. Stocks are first screened to remove those that score poorly on financial and growth measures. Those stocks that pass the screen are then ranked on a stand-alone basis in relation to two factors — beta and value. The stocks that rank the highest for each factor are combined into one portfolio. Stocks that rank high on both factors are over-weighted. This strategy results in a basket of 86 stocks, charging investors 88 bps in annual fees.

The product has amassed $59 million in its asset base and trades in a paltry volume of 2,000 shares per day on average.

Pacer Trendpilot Fund of Funds ETF (TRND) – Beta: 0.57

Pacer Trendpilot Fund of Funds ETF follows the Pacer Trendpilot Fund of Funds Index, which seeks to implement a systematic trend-following strategy that directs exposure to 100% to the equity component; or 50% to the equity component and 50% to 3-month US Treasury bills; or 100% to 3-month US Treasury bills, depending on the relative performance of the equity Component and its 200-business day historical simple moving average.

Pacer Trendpilot Fund of Funds ETF has amassed $59.1 million and charges 77 bps in annual fees. It trades in a volume of around 5,000 shares a day on average.

Armor US Equity Index ETF (ARMR) – Beta: 0.61

Armor US Equity Index ETF seeks to provide exposure to the sectors of the U.S. equity market that the fund’s index provider believes are most likely to generate positive returns while aiming to provide downside protection and lower volatility. It follows the Armor US Equity Index, charging 60 bps in annual fees from investors.

Armor US Equity Index ETF has $62.3 million in AUM and trades in an average daily volume of 7,000 shares.

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