U.S. markets may have bounced back at the start of March amid rising possibilities of global monetary policy easing but that hasn’t wiped out the allure of low volatility and high-quality ETFs.
These apparently safe products — which normally do not surge in a bull market but offer protection in troubled times — were in fine fettle despite yesterday’s market rebound. The three key U.S. equity gauges returned in the range of 4.5% to 5.1% on Mar 2 as investors embarked on a bargain hunting after a steep coronavirus-induced market rout in late February (read: 5 Top-Ranked Sector ETFs to Buy at Bargain Price).
Investors should note that at the current level, according to CME FedWatch tool, there is a 100% probability of monetary policy easing of 50 bps in the Fed’s mid-March meeting. Several other central banks (like Japan) may pursue policy easing as well. Australia has already cut rates. The People's Bank of China has been supporting easy banking rules.
But investors’ equal inclination toward low volatility and high-quality products suggest that the virus fear is still there in investors’ mind. This indicates thatany lower-than-expected policy easing by central banks may bring back the lull in the market.
With this, opportunities for low volatility and high-quality ETFs remain alive, no matter what high growth stocks and ETFs hit (read: "At Least 3 Rate Cuts" by December? Sector ETFs to Play).
Invesco S&P 500 Low Volatility ETF SPLV — Up 5.1% on Mar 2
The underlying S&P 500 Low Volatility Index consists of the 100 stocks from the S&P 500 Index, with the lowest realized volatility over the past 12 months. It added more than (ASX:SPY) (up 4.3%). SPLV is heavy on utilities (27.22%) followed by real estate (17.85%) and financials (16.73%).
iShares Edge MSCI Min Vol USA ETF USMV – Up 5.5%
The underlying MSCI USA Minimum Volatility Index is composed of U.S. equities that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market. Information Technology, Financials, Consumer Staples and Health Care have a double-digit weight in the fund.
iShares Edge MSCI USA Quality Factor ETF QUAL – Up 4.4%
The fund gives exposure to large- and mid-cap U.S. stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage). Information Technology is the top sector (24.05%) in the fund (read: Here's Why You Should Bet on Quality ETFs & Stocks).
Invesco S&P 500 Quality ETF SPHQ – Up 4.7%
The underlying S&P 500 Quality Index tracks the performance of stocks in the S&P 500 Index that have the highest quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio. Here, Information Technology takes the top position at 35.51%, while Health Care occupies the second position at 23%.
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SPDR S&P 500 ETF (NYSE:SPY): ETF Research Reports
iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
Invesco S&P 500 Quality ETF (SPHQ): ETF Research Reports
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
iShares Edge MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
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Zacks Investment Research