10 Best Low Volatility ETFs To Buy
In this article, we discuss 10 best low volatility ETFs to buy. If you want to skip our discussion on low volatility investments, head over to 5 Best Low Volatility ETFs To Buy.
What is Low Volatility Investing?
Low volatility investing refers to an investment strategy where a stock portfolio is less volatile in terms of price fluctuations compared to the broader market, offering a smoother investment experience. Rather than choosing only low-risk stocks, this strategy measures how stocks move relative to each other. The main objective of low volatility investment strategies is to lower overall portfolio risk. The best way to benefit from low volatility investments is to invest in minimum volatility ETFs, which serve as strategic investment vehicles with long-term asset allocation, allowing investors to mitigate risk successfully. Historically, minimum volatility indexes have indicated reduced volatility compared to broader market indices.
Betting against sudden changes in currency values has become very profitable in the financial world. Many big firms on Wall Street are seeing that their clients are no longer making bets against the market and believe that markets will remain stable. This is a big change in the market where currencies are traded, which is worth a whopping $7.5 trillion-a-day. The ups and downs in currency values that traders used to make money from are mostly gone now, as computer programs make bets that markets will stay calm. This is making lots of money for those anticipating minimal market swings. Henry Drysdale, head of currency options trading at NatWest Markets in London, told Bloomberg:
“The emergence and dominance of systematic volatility selling funds is a bit self-fulfilling. If the strategy is successful, more enter the space and it gets quite crowded, with more and more participants selling volatility at lower and lower levels.”
Similarly, traders are making bets that raw materials prices will remain stable, going against the historical pattern of sharp ups and downs in the commodity sector. Different factors have contributed to the stagnation of commodity prices in recent months. For example, the oil market has been constrained by OPEC+ production cuts and ample spare capacity, while copper prices are influenced by growing demand from renewable energy sources alongside challenges in traditional consumption sectors. Gas volatility has returned to pre-crisis levels in Europe. This trend reflects a broader pattern in global markets, where investors are betting against significant price swings. With equity markets trending upwards and substantial investments pouring into ETFs focused on maintaining market stability, macro-level volatility has decreased. According to Jo Harmendjian, portfolio manager at Tiberius Group AG:
“It’s clear that we’re not in a momentum year for commodities at least. The only thing that can make you money is to find structures that can make money if nothing happens, a carry trade generated by selling vol wisely.”
In January this year, Christine Benz, director of personal finance and retirement planning at Morningstar, said that she believes investing in individual stocks is not advisable for beginners, as they pose significant risks to portfolios. Instead, she recommends young investors focus on constructing diversified portfolios using low-cost mutual funds and ETFs. Amateur investors often lack the necessary research skills to select stocks wisely, relying instead on familiarity with well-known companies. This approach leaves them vulnerable to notable losses if these stocks underperform. Benz pointed out the recent market trends, where overzealous investors drove up prices of speculative stocks, only to see them nosedive later. To mitigate such risks, she advised spreading investments across a broad market index using index funds or ETFs. Benz told CNBC:
“If there’s a single investment type where there is a lot of data to support that, where you’ll have a good outcome, it’s using broad market index funds.”
Some of the best low volatility ETFs to buy include Fidelity Low Volatility Factor ETF (NYSE:FDLO), SPDR Russell 1000 Low Volatility Focus ETF (NYSE:ONEV), and iShares MSCI USA Min Vol Factor ETF (BATS:USMV), which expose investors to stocks like Apple Inc. (NASDAQ:AAPL), Cencora, Inc. (NYSE:COR), and Broadcom Inc. (NASDAQ:AVGO).
Our Methodology
We curated our list of the best low volatility ETFs by choosing consensus picks from multiple credible websites. We have mentioned the 5-year share price performance of each ETF as of April 4, 2024, ranking the list in ascending order of the share price performance. We have also discussed the top holdings of the ETFs to offer better insight to potential investors.
Photo by Adam Nowakowski on Unsplash
Best Low Volatility ETFs To Buy
10. Goldman Sachs ActiveBeta(R) World Low Vol Plus Equity ETF (BATS:GLOV)
5-Year Share Price Performance as of April 4: 10.70%
Goldman Sachs ActiveBeta(R) World Low Vol Plus Equity ETF (BATS:GLOV) aims to mirror the performance of the Goldman Sachs ActiveBeta World Low Vol Plus Equity Index, before fees and expenses. The fund offers the benefits of low volatility stocks in terms of risk reduction. The ETF was established on March 15, 2022. As of April 3, 2024, GLOV holds $859.07 million in assets under management, with a portfolio comprising 373 stocks. The fund is passively managed, along with an expense ratio of 0.25%. It is one of the best low volatility ETFs.
Microsoft Corporation (NASDAQ:MSFT) is the largest holding of Goldman Sachs ActiveBeta(R) World Low Vol Plus Equity ETF (BATS:GLOV). Jefferies analyst Brent Thill recently delved into the AI sector, identifying major tech companies like Microsoft as long-term winners. He highlighted Microsoft's strong commitment to AI as a key factor making the stock appealing for investors. Thill assigned a Buy rating to Microsoft's stock on April 3, with a price target of $550, suggesting a potential one-year upside of 30%.
According to Insider Monkey’s fourth quarter database, 302 hedge funds were bullish on Microsoft Corporation (NASDAQ:MSFT), compared to 306 funds in the last quarter. Bill & Melinda Gates Foundation Trust is the leading stakeholder of the company, with a position worth $14.3 billion.
Like Apple Inc. (NASDAQ:AAPL), Cencora, Inc. (NYSE:COR), and Broadcom Inc. (NASDAQ:AVGO), Microsoft Corporation (NASDAQ:MSFT) is one of the best stocks to invest in.
Diamond Hill Long-Short Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its fourth quarter 2023 investor letter:
“Other top Q4 contributors included Meta and Microsoft Corporation (NASDAQ:MSFT). Social media platform Meta’s digital ad revenues increased during the quarter, while it continued cutting costs — a combination which generated better-than-expected revenues and profits. Shares of software and information technology services provider Microsoft rose as its Azure cloud business continues growing and the company continues capitalizing on its attractive recurring revenue-based model to drive growth.”
9. Franklin International Low Volatility High Dividend Index ETF (BATS:LVHI)
5-Year Share Price Performance as of April 4: 13.30%
Franklin International Low Volatility High Dividend Index ETF (BATS:LVHI) aims to mirror the performance of Franklin International Low Volatility High Dividend Hedged Index, comprising equity securities from developed markets outside the United States. These securities are characterized by relatively high yield and low price and earnings volatility. The fund was established on July 27, 2016. As of August 1, 2023, Franklin International Low Volatility High Dividend Index ETF (BATS:LVHI)’s expense ratio stands at 0.40% and net assets as of April 5 came in at $845.40 million. It is one of the best low volatility ETFs to invest in.
Stellantis N.V. (NYSE:STLA) is the largest equity holding of Franklin International Low Volatility High Dividend Index ETF (BATS:LVHI). Stellantis is involved in the design, engineering, manufacturing, distribution, and sale of automobiles, light commercial vehicles, engines, and transmission systems. On February 15, Stellantis N.V. (NYSE:STLA) reported a FY non-GAAP EPS of €6.42 and a revenue of €189.5 billion, with consolidated shipment volumes increasing 7%.
According to Insider Monkey’s fourth quarter database, 33 hedge funds were bullish on Stellantis N.V. (NYSE:STLA), compared to 27 funds in the prior quarter.
Miller Value Partners Income Strategy made the following comment about Stellantis N.V. (NYSE:STLA) in its second quarter 2023 investor letter:
“We initiated a starter position in Stellantis N.V. (NYSE:STLA), which makes Jeep, Dodge and Fiat cars. The company has a nearly 8% dividend yield with enough net cash (cash minus debt) on the balance sheet to cover the dividend for almost five years. The company trades at 1.7x operating profits, which means the market is already expecting a likely drop in cash flow. Still, the shares appear to be worth meaningfully more than where they trade, and management is heavily aligned with stockholders with a 14% stake. They share our view that the valuation is compelling, as the company plans on repurchasing ~3% of shares outstanding this year.”
8. Franklin U.S. Low Volatility High Dividend Index ETF (NASDAQ:LVHD)
5-Year Share Price Performance as of April 4: 13.63%
Franklin U.S. Low Volatility High Dividend Index ETF (NASDAQ:LVHD) aims to replicate the performance of the Franklin Low Volatility High Dividend Index, which consists of equity securities of American companies known for relatively high yield and low price and earnings volatility. The index begins with the top 3,000 US stocks according to the Solactive US Broad Market Index, which includes large-cap, mid-cap, and small-cap companies. It is one of the best low volatility ETFs to buy. Franklin U.S. Low Volatility High Dividend Index ETF (NASDAQ:LVHD) was launched on December 28, 2015. As of April 5, the ETF’s net assets amounted to $635.75 million and its expense ratio came in at 0.27%.
The Kraft Heinz Company (NASDAQ:KHC) is the top holding of Franklin U.S. Low Volatility High Dividend Index ETF (NASDAQ:LVHD). On February 14, The Kraft Heinz Company (NASDAQ:KHC) reported a Q4 non-GAAP EPS of $0.78, beating market consensus by $0.01, and a revenue of $6.9 billion, missing Wall Street estimates by $80 million.
According to Insider Monkey’s fourth quarter database, 44 hedge funds were bullish on The Kraft Heinz Company (NASDAQ:KHC), compared to 40 funds in the earlier quarter.
7. iShares MSCI USA Small-Cap Min Vol Factor ETF (BATS:SMMV)
5-Year Share Price Performance as of April 4: 13.90%
iShares MSCI USA Small-Cap Min Vol Factor ETF (BATS:SMMV) aims to replicate the performance of the MSCI USA Small Cap Minimum Volatility Index, which consists of small-capitalization US equities known for lower volatility compared to the overall small-cap US equity market. It is one of the best low volatility ETFs to invest in. As of April 5, 2024, the fund’s net assets amounted to $774.2 million, along with an expense ratio of 0.20%.
Murphy USA Inc. (NYSE:MUSA) is the largest holding of iShares MSCI USA Small-Cap Min Vol Factor ETF (BATS:SMMV). The company is involved in the marketing of retail motor fuel products and convenience merchandise. Murphy USA Inc. (NYSE:MUSA) paid a $0.42 per share quarterly dividend to shareholders on March 7.
According to Insider Monkey’s fourth quarter database, 30 hedge funds were long Murphy USA Inc. (NYSE:MUSA), compared to 31 funds in the prior quarter.
ClearBridge All Cap Value Strategy made the following comment about Murphy USA Inc. (NYSE:MUSA) in its Q3 2023 investor letter:
“In the consumer discretionary sector, retail gas station and convenience store operator Murphy USA Inc. (NYSE:MUSA) benefited from rising fuel margins thanks to the combination of rising oil and gas prices and its low-cost operating discipline. As investors grew more uncertain about the future, the company saw increased demand for its lower-cost convenience store merchandise. We believe the company’s more defensive nature will remain a tailwind in an increasingly uncertain economy.”
6. iShares MSCI Global Min Vol Factor ETF (BATS:ACWV)
5-Year Share Price Performance as of April 4: 16.77%
Ranking 6th on our list of the best low volatility ETFs is iShares MSCI Global Min Vol Factor ETF (BATS:ACWV). The fund aims to replicate the performance of the MSCI All Country World Minimum Volatility Index, consisting of developed and emerging market equities known for lower volatility compared to the broader developed and emerging equity markets. As of April 5, 2024, the fund had net assets worth $4.25 billion, along with an expense ratio of 0.20% and a portfolio comprising 381 stocks.
Merck & Co., Inc. (NYSE:MRK) is the largest holding of the iShares MSCI Global Min Vol Factor ETF (BATS:ACWV). On February 1, Merck reported a Q4 non-GAAP EPS of $0.03 and a revenue of $14.6 billion, outperforming Wall Street estimates by $0.14 and $120 million, respectively.
According to Insider Monkey’s fourth quarter database, 98 hedge funds were bullish on Merck & Co., Inc. (NYSE:MRK), compared to 85 funds in the earlier quarter.
In addition to Apple Inc. (NASDAQ:AAPL), Cencora, Inc. (NYSE:COR), and Broadcom Inc. (NASDAQ:AVGO), Merck & Co., Inc. (NYSE:MRK) is one of the top stocks on the radar of elite hedge funds.
Carillon Eagle Mid Cap Growth Fund made the following comment about Merck & Co., Inc. (NYSE:MRK) in its Q3 2023 investor letter:
“Merck & Co., Inc. (NYSE:MRK) underperformed in the third quarter, based on what we view as largely macroeconomic-related factors. The company continues to execute well, both clinically and fundamentally, but much of the biopharmaceutical industry has been weak as investors are gravitating to other, more cyclical sectors.”
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Disclosure: None. 10 Best Low Volatility ETFs To Buy is originally published on Insider Monkey.