Markets

3 Low Beta Funds to Brave Market Volatility

October turned out to be the worst month for the markets since March. The three major stock indexes have trodden down at least 4.7% so far this month. The broad-based collapse in U.S. stock markets can be attributed to investors' apprehensions regarding soaring yields, lingering trade-conflict with China and several geopolitical crises.

The situation is likely to intensify in the near term with mid-term Congressional elections less than two weeks away, and the Federal Reserve signaling one more rate hike this year. Under such circumstances, shielding one's portfolio from the adverse effects of any geopolitical escalation is of utmost importance. So, investing in low-beta mutual funds at this point seems prudent.

Rising Bond Yields Weigh on the Markets

The yields on 10-year U.S. Treasury Note is currently hovering around its historic highs. A higher benchmark interest rate will raise the cost of funds while investing in risky assets like equities. Meanwhile, Fed chair Jerome Powell has given clear indications that the benchmark rates might be hiked for the fourth time this year.

Geopolitical Unrest Just Got Worse

Political turmoil between the United States the Saudi Arabia intensified last week following the killing of the U.S.-based journalist Jamal Khashoggi inside the Saudi consulate at Istanbul. President Trump has termed the Saudi government's response as "the worst cover-up ever." Meanwhile, Saudi Arabia has warned against any possible sanction by the United States on the country.

Meanwhile, trade-related conflicts between the United States and China are showing no signs of abating. The U.S. government has already imposed $250 billion of tariffs on Chinese goods, while China retaliated with $110 billion tariffs on U.S. exports. Notably, President Trump has threatened China with the imposition of another $267 billion of tariffs if the situation worsens further.

Buy These 5 Low Beta Mutual Funds

Amid such a high level of uncertainty, it will be prudent to pick safe mutual funds. Such funds are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.

We have selected five low beta mutual funds that have given positive one-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money ).

PIA Short Term Securities Advisor PIASX invests a bulk of its assets in securities that have a duration of three years or lower. The fund generally invests in those securities that are rated Baa3 and/or BBB- or higher by a Nationally Recognized Statistical Rating Organization.

PIASX carries an expense ratio of 0.39% compared with the category average of 0.51%. Moreover, PIASX requires a minimal initial investment of $1,000. The fund has three-year annualized returns of 1.1%.

PIASX has a Zacks Mutual Fund Rank #1. Further, Bistra Pashamova is one of the fund managers of PIASX since 1999. The fund carries a 3-year beta of 0.12.

T. Rowe Price Ultra Short-Term Bond TRBUX maintains a diversified portfolio by investing in bonds and other related securities that are rated investment-grade. TRBUX seeks maximization of income by investing mainly in investment-grade government and corporate securities that have low maturity period.

TRBUX carries an expense ratio of 0.35% compared with the category average of 0.51%. Moreover, TRBUX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 1.7%.

TRBUX has a Zacks Mutual Fund Rank #1. Further, Joseph K. Lynagh is the fund manager of TRBUX since 2012. The fund carries a 3-year beta of 0.06.

Dodge & Cox Income DODIX seeks to maintain a diversified portfolio by investing a large chunk of its assets in investment-grade debt securities and cash equivalents. The fund targets those debt securities for investment that are rated BBB- or higher by Fitch Ratings or Standard & Poor's Ratings Group, or Baa3 or better by Moody's Investors Service.

DODIX carries an expense ratio of 0.43% compared with the category average of 0.75%. Moreover, DODIX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 3.1%.

DODIX has a Zacks Mutual Fund Rank #1. Further, Dana M. Emery is one of the fund managers of DODIX since 1989. The fund carries a three-year beta of 0.68.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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