Navigate Market Swings With Low-Volatility ETFs

Wall Street has exhibited heightened volatility in recent weeks, with the major indices displaying significant swings. The uncertainty surrounding Trump’s trade tariff policies and escalating US-China tensions has been playing foul in the stock market. Federal Reserve Chair Jerome Powell’s warnings of severe economic consequences of escalating tariffs heightened volatility. 

Against such a backdrop, investors seeking to remain invested in the equity world may consider low-volatility 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.

Market Volatility Flares Up

Powell warned that trade tensions could spur inflation and slow down economic growth, creating a stage for stagflation. He emphasized that the central bank is in no rush to reduce interest rates and will "wait for greater clarity" on Trump's trade policy. Powell said that the central bank could find itself in a dilemma between controlling inflation and supporting economic growth (read: 5 Dividend ETFs Surviving the Tariff Turmoil Past Month).

Though the latest inflation and retail sales data remain encouraging, consumer confidence in the economy is declining gradually. Consumer sentiment tumbled to its lowest level since 2022 in April as the expected inflation level hit its highest since 1981, per the latest survey of the University of Michigan. The expectation for inflation over the year jumped to 6.7%, the highest level since November 1981, and is up from 5% in March. At the five-year horizon, the expectation climbed to 4.4%, a 0.3 percentage point increase from March and the highest since June 1991. Several analysts project an increased chance of a recession with growing indications that economic activity is slowing down.

Though President Donald Trump halted the "reciprocal" tariffs for 90 days on some 75 countries, uncertainty remains about what will happen after that. Trump is expected to announce a tariff rate on imported semiconductors over the next week, adding that there would be flexibility with some companies in the sector. 

Adding to the chaos, NVIDIA NVDA tanked 7% yesterday on news that the chip giant would face new curbs from the U.S. government on sales to China. The new restrictions on NVIDIA chip exports to China would result in $5.5 billion in charges.

“Extreme fear” is the sentiment driving markets in recent weeks, according to CNN’s Fear and Greed Index. The index has been in “extreme fear” since the end of March.

Low-Volatility ETFs to Bet On

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 180 stocks in its basket, with none accounting for more than 1.7% of the assets. Information technology takes the top spot at 24%, whereas financials, healthcare and consumer staples round off the next three spots.

With an AUM of $23.3 billion, iShares MSCI USA Min Vol Factor ETF charges 15 bps in annual fees and trades in a solid average daily volume of 4.5 million shares. USMV has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Ride Out the Market Storm with Low-Volatility ETF Strategies).

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 receiving double-digit exposure each.

Invesco S&P 500 Low Volatility ETF has amassed $7.6 billion in its asset base and trades in a solid volume of 4 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank #2, 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 $3.3 billion and charges 30 bps in annual fees. The fund trades in an average daily volume of 1.2 million shares and has a Zacks ETF Rank #3 (Hold) 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 168 stocks in its basket, with key holdings in industrials, financials, information technology and real estate. 

With an AUM of $988.5 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 68,000 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 129 stocks in its basket, with key holdings in information technology, financials, healthcare and consumer discretionary. 

Fidelity Low Volatility Factor ETF has garnered $1.2 billion in AUM and trades in an average daily volume of 224,000 shares. FDLO charges 16 bps in annual fees from investors.

Bottom Line

These products could be worthwhile for low-risk-tolerance investors and have the potential to outperform the broader market, especially if volatility persists.

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