Low-Beta ETFs To Counter Market Volatility

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After first back-to-back monthly gains since 2021, Wall Street is once again caught in a nasty web of trading, triggered by the Fed’s uncertain rate outlook. The S&P 500 extended its losing streak to four sessions, as investors fretted over Federal Reserve rate hikes and further talk of a looming recession.

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), Pacer Swan SOS Fund of Funds ETF (PSFF - Free Report), ETC 6 Meridian Small Cap Equity ETF (SIXS - Free Report) and Pacer Trendpilot Fund of Funds ETF (TRND - Free Report). These funds could be intriguing options for investors amid the current market volatility.

The bouts of latest data — hotter-than-expected ISM services and stronger jobs — has put a damper on hopes that the Federal Reserve would ease the pace of its interest rate hikes amid recent signs of ebbing inflation. Annual inflation slipped below 8% for the first time in eight months. The consumer price index rose 7.7% annually in October, after rising 8.2% at the end of September, while the core consumer price index, which strips out volatile components such as food and energy prices, climbed 6.3% year over year, down from 6.6% in September.

The economy added 263,000 jobs in November, marking another strong month of jobs growth. The unemployment rate remained at 3.7%, close to a 50-year low, while average hourly earnings jumped 0.6% compared with the prior month and 5.1% from the year-ago month. Higher wages will add to higher inflation. Meanwhile, business activity jumped by the most since March 2021 in November, suggesting that the largest part of the economy remains resilient. The Institute for Supply Management’s gauge of services rose to 56.5 last month from 54.4 in October.

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.

All the above-mentioned funds offer broad 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) – Beta: 0.33

Invesco S&P 500 Downside Hedged ETF is an actively managed fund and 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 $276.4 million in its asset base and charges 40 bps in fees per year from its investors. Volume is good, exchanging 77,000 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 lower risk 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 AUM of $509.4 million, Nationwide Nasdaq-100 Risk-Managed Income ETF charges 68 bps in annual fees and trades in an average daily volume of 117,000 shares.

Pacer Swan SOS Fund of Funds ETF (PSFF) – Beta: 0.45

Pacer Swan SOS Fund of Funds ETF is an actively-managed fund that seeks capital appreciation with downside protection. The fund will primarily use Pacer Swan SOS ETFs, but may hold other Pacer ETFs according to the sub-advisor’s discretion. PSFF currebtly holds 13 ETFs in its roster and charges 93 bps in annual fees.

Pacer Swan SOS Fund of Funds ETF has amassed $122.9 million and trades in average dialy volume of 37,000 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 $65.2 million in its asset base and trades in a paltry volume of under 1,000 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 $57.5 million and charges 77 bps in annual fees. It trades in a volume of around 7,000 shares a day on average.

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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 ...

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