Low-Volatility ETFs to Sail Through Trade War Uncertainty

Though positive developments in trade talks are bringing the U.S. market back in shape, low-volatility products continue to be in demand among investors. These seemingly safe products, which generally do not surge in a bull market but offer protection in erratic conditions, are steady this year. In fact, the S&P 500 Low Volatility Index TR has gained 24.8% so far in 2019 in comparison to S&P 500’s (TR) 21.8% gain (read: 8 High-Flying Leveraged ETFs YTD).

Current Trade War Scenario

Trump recently postponed the planned tariff increase of 5% on $250 billion of Chinese goods from Oct 1 to Oct 15 as “a gesture of goodwill.” The decision followed China's move to exempt some U.S. goods from its tariffs, scheduled to take effect from Sep 17.  Also, China has recently expressed its interest to focus on just trade initially. It wants to put more complicated issues like national security aside for the time being. Chinese officials believe this will help fast-tracking the efforts to resolve the trade dispute (read: SOYB ETF in Focus as China Opens Door to Argentine Soy Meal).

These developments follow the recent escalation in trade war when China imposed new tariffs of 5% to 10% on $75 billion worth of U.S. goods, effective on some items from Sep 1 and others from Dec 15. The raised duties will be levied on nearly 5,078 U.S. products, including agricultural goods like soybeans and coffee along with whiskey, seafood, aircraft and crude oil. Trump responded by raising tariffs on $550 billion worth of Chinese goods. He lifted existing tariffs to 30% from 25% on $250 billion of Chinese imports effective Oct 1.  Moreover, tariffs planned on a further $300 billion in Chinese goods will be revised to 15% from 10% in two stages — Sep 1 and Dec 15 (read: Trade War Gets Uglier: Here Are the ETF Winners & Losers).

Why Opt for Low-Volatility ETFs?

Although the countries have adopted a peacemaking tone but the probability in favor of a truce is low. Moreover, Trump has said that he is prepared to raise tariffs if the situation demands. Given the sensitivity of the matter, the trade war uncertainty will continue to affect markets. In this regard, U.S. Commerce Department’s former senior official, William Reinsch has commented, “both sides are trying to find a way out of the box”. He further added, “short term, that’s good. But I don’t think anything’s changed on the fundamentals, and once they get back to the table, they’ll discover that.”

Low-Volatility ETFs Up 25% or More

Here we discuss low-volatility ETFs that have gained more than 25% in 2019.

Franklin Liberty U.S. Low Volatility ETF FLLV — up 27% year to date

The actively-managed fund seeks capital appreciation with an emphasis on lower volatility than the broader equity market, as measured by the Russell 1000 Index. The fund has AUM of $18.4 million with an expense ratio of 0.50%. It trades in three months average volumes about 2,500 shares (read: 3 Low-Volatility Stocks & ETFs to Buy).

SPDR SSGA US Large Cap Low Volatility Index ETF LGLV — up 26.1%

The underlying index of the fund, SSGA US Large Cap Low Volatility Index is designed to track the performance of U.S. large capitalization companies that exhibit low volatility. The fund has AUM of $846.6 million with an expense ratio of 0.12%. It trades in three months average volumes about 114,000 shares (read: Investors Most Bearish Since 2009: Hedge With These ETFs).

First Trust Dorsey Wright Momentum & Low Volatility ETF DVOL — up 25.4%

The underlying Dorsey Wright Momentum Plus Low Volatility Index seeks to track the overall performance of 50 stocks within the NASDAQ US Large Mid Cap Index that exhibit the lowest levels of volatility while maintaining high levels of relative strength. The fund has AUM of $118.6 million with an expense ratio of 0.60%. It trades in three months average volumes about 71,000 shares (read: Momentum ETFs to Buy as US-China Adopt Peacemaking Tone).

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Franklin Liberty U.S. Low Volatility ETF (FLLV): ETF Research Reports

First Trust Dorsey Wright Momentum & Low Volatility ETF (DVOL): ETF Research Reports

SPDR SSgA US Large Cap Low Volatility Index ETF (LGLV): ETF Research Reports

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