Ride Out the Volatile October Month With These ETFs
Low-volatility products could be fascinating picks for those seeking steady investment in equities amid the current market volatility.
After a seasonally weak month like September comes October, which carries the reputation of being volatile. It’s been just four trading days and the month has already been showing volatile straits. The Dow Jones Industrial Average rose 483 points on Oct 1, fell 324 points on Oct 4 and climbed 312 points on the third trading day of the month. Finally, on Oct 6, the Dow Jones swung over 550 points. In this regard, Ryan Detrick of LPL Financial has said that “Well, October is sure living up to its reputation as the most volatile month of the year. We expect the October roller-coaster market to stick around for a bit longer,” per a CNBC article.
Investors may have to handle certain issues like inflationary pressures, supply chain challenges, probabilities of Fed tapering the fiscal stimulus, China’s Evergrande crisis along with concerns over a debt-ceiling breach in October. These factors can also keep the stock market volatile.
The rapid spread of the COVID-19 Delta variant has resulted in a section of market analysts and financial experts curtailing their forecast for third-quarter U.S. economic growth.
Notably, higher inflationary pressure might persist next year owing to prolonged supply-chain disruptions due to the pandemic. Fed Chairman Jerome Powell has also signaled that the central bank will begin tapering its $120 billion per month bond-buy program possibly this year, and the first hike in interest rates may happen as early as the second half of 2022. Consequently, yields on government bonds have been spiking significantly.
Commenting on the market conditions in October, CFRA chief investment strategist Sam Stovall has said that “Q4 2021 will likely record a higher-than-average return. However, investors will need to hang on tight during the typically tumultuous ride in October, which saw 36% higher volatility when compared with the average for the other 11 months,” as stated in a CNBC article.
Meanwhile, the news' optimism highlighting positive updates on Merck (MRK) and Ridgeback Biotherapeutics’ investigational oral antiviral medicine, molnupiravir, can support the market. The update supports the spaces expected to gain from the reopening of economies as molnupiravir will help fight against COVID-19, if approved by the FDA.
Going on, U.S. consumer sentiment marginally improved despite rising concerns about coronavirus cases and inflation levels. The University of Michigan’s preliminary consumer sentiment inched up to 71 in September from 70.3 last month, per a BloombergQuint article.
The strength in consumer sentiment can be the primary driving force behind the solid performance by the consumer discretionary space as consumers are expected to splurge this holiday season after being restricted for more than a year.
According to the Bespoke Investment Group, the Dow Jones Industrial Average has risen 60% of the time in October over the past 50 years, averaging an increase of 0.5% (per a CNBC article). The market index was negative with an average loss of 0.9%, most of the time in September.
Low-Volatility ETFs to the Rescue
Low-volatility products could be intriguing choices for those who want to continue investing in equities in turbulent market conditions. Consider the following exciting options:
iShares MSCI USA Min Vol Factor ETF USMV
This fund offers exposure to 183 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. With AUM of $27.00 billion, the product charges 0.15% in expense ratio (read: September's Weak History Turning True: 5 ETF Buying Zones).
Invesco S&P 500 Low Volatility ETF SPLV
This ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. The fund is based on the S&P 500 Low Volatility Index and holds 102 securities in its basket. It has AUM of $7.48 billion and charges an expense ratio of 25 basis points (bps) as stated in the prospectus (read: Growth Concerns to Drive Demand for Low-Volatility ETFs).
iShares MSCI Global Min Vol Factor ETF ACWV
The fund provides exposure to global stocks with potentially less risk. The fund tracks the MSCI All Country World Minimum Volatility Index and holds 399 securities. It has AUM of $5.13 billion and charges 20 bps in annual fees.
Invesco S&P 500 High Dividend Low Volatility ETF SPHD
The fund seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. It holds 51 securities. The fund has AUM of $2.95 billion and charges 30 bps in annual fees (read: ETF Strategies to Play Rising U.S. Treasury Yields).
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iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
iShares MSCI Global Min Vol Factor ETF (ACWV): ETF Research Reports
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