Worried About Volatility? Invest In These ETFs

After an astounding rally for the past couple of months, Wall Street is stuck in a vicious circle of volatility caused by fears of a second wave of coronavirus cases and the Fed’s grim economic outlook. This is especially true as the three major indices logged in their worst weekly declines since Mar 20.

This rough trading is likely to persist as Bloomberg data showed that new cases in the densely populated state of Florida grew faster than the past week’s average as of Sunday’s tally and Washington State Department of Health issued a report warning of state-wide increases in the virus. According to Reuters, half a dozen states, including Texas and Arizona, are facing rising infections of COVID-19. Arizona, Utah and New Mexico all posted a rise in new cases of 40% or higher, while Florida, Arkansas, South Carolina and North Carolina saw cases rise by more than 30% for the week ended Jun 7, on a rolling seven-day basis.

The central bank said that the impacts of the COVID-19 pandemic would last for the next couple of months and cautioned that some of the millions of jobs that have been lost during the viral outbreak may never return. In fact, National Securities’ Art Hogan warned that the volatility burst will affect the market for weeks.

However, massive stimulus flowing into the economy, potential for coronavirus vaccines, and a surging technology sector will continue to provide an upside to the stock market.

Against such a backdrop, those seeking to remain invested in the equity world could consider low-risk ETFs by picking low-volatility products.

Why?

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. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.

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