Low Volatility ETFs To Buy If North Korea Tensions Flare Up

North Korea tensions cooled off over the past few weeks but have resurfaced to unnerve investors once again. This is especially true given that the regime launched a missile that flew over Japan and landed in the Pacific Ocean in the morning. This has sparked warnings in the northern part of the country, urging people to take shelter.

Japanese Prime Minister Shinzo Abe condemned the launch as an “unprecedented and grave threat” to the country’s security. Donald Trump and Shinzo Abe vowed to increase pressure on North Korea, sparking worries of fresh tension between Washington and Pyongyang.

North Korea missile tests have been a matter of concern for several months. This tension escalated earlier this month, when Donald Trump and North Korean official Kim Jong Un had engaged in a war of words. Trump previously warned that North Korea would face "fire and fury like the world has never seen" if it continues to threaten the U.S. and North Korea retaliated by warning of a missile strike on the U.S. Pacific territory of Guam, which is home to a large U.S. military base (read: ETFs to Profit from US-North Korea Tensions).

The renewed North Korean fear has dampened the appeal for riskier assets once again. However, the macro fundamentals painted a rosier picture of the stock market thanks to strong corporate earnings, still low interest rates, an impressive labor market, higher consumer spending and improving health of economies around the world.

Amid signs of flared-up North Korea tension, investors should protect their portfolio with low volatility ETFs. This is because these products have the potential to outpace the broader market providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.

As such, we present four ETFs that could be solid options for investors in the current choppy market.

iShares Edge MSCI Min Vol USA ETF USMV

This fund offers exposure to 191 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. It is well spread across a number of securities, with none holding more than 1.60% of assets. From a sector look, health care, information technology, consumer staples, and financials take the top four spots with a double-digit allocation each. With AUM of $13.7 billion, the product charges 0.15% in expense ratio. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Low Volatility ETFs Surge Amid Trump and Fed Worries).

iShares Edge MSCI Min Vol EAFE ETF EFAV

This product offers exposure to stocks in Europe, Australia, Asia and the Far East with potentially less risk. Holding 239 stocks in its basket, it is widely diversified with each accounting for less than 1.6% of assets. Financials, consumer staples, healthcare, and industrials are the top four sectors with a double-digit allocation each. From a country look, more than one-fourth of the portfolio is allotted to Japan while United Kingdom and Switzerland round off the next two spots. EFAV has accumulated $7.4 billion in its asset base while charges 20 bps in fees and expenses. It has a Zacks ETF Rank #3 with a Low risk outlook.

PowerShares S&P 500 Low Volatility Portfolio SPLV

This 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 100 securities in its basket with none accounting for more than 1.3% of assets. Financials, industrials, utilities, consumer staples and information technology make up the top four sectors with a double-digit allocation each. SPLV has amassed $6.9 billion in its asset base. It charges 25 bps in annual fees and has a Zacks ETF Rank of #3 with a Medium risk outlook (read: Volatility Spikes on Geopolitics: 4 ETF Tactics to Shield).

iShares Edge MSCI Min Vol Global ETF ACWV

This product offers exposure to global stocks that have lower volatility characteristics relative to the broader developed and emerging equity markets. Holding 361 stocks in its basket, it is well diversified with each accounting for less than 1.6%. Health care, financials, consumer staples, and information technology are the top sectors with a double-digit allocation each. American firms dominate the fund’s portfolio at 54.3% followed by Japan (12.6%). ACWV has AUM of over $3.6 billion and charges 20 bps in annual fees from investors.


Bottom Line

Investors should note that these funds have outpaced the broad market funds over the past one month. The trend is likely to continue amid intensifying geopolitical tensions.

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ISHARS-MS EMVIF (EFAV): ETF Research Reports

POWERSH-SP5 LVP (SPLV): ETF Research Reports

ISHARS-MS ACW (ACWV): ETF Research Reports

ISHARS-MS US MV (USMV): ETF Research Reports

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Zacks Investment Research