5 Low-Risk ETFs for Volatile Markets

09/07/2011 9:00 am EST

Focus: ETFS

Traders and investors looking for more stability and relative safety should consider these 5 ETFs, whose ultra-low betas prove they are smart buys, even in today’s very volatile conditions.

To call the last few weeks volatile would be an understatement. Markets have had some of their most violent trading days in recent memory, as the beginning of August brought multiple days with swings higher than 5% in major equity indices.

Amid a botched debt negotiation and a downgrade of US debt by Standard and Poor’s, investors have been on something of a rollercoaster ride as of late.

While many hoped that September would bring markets into the black, they were unfortunately let down. Just two days into the month, a dismal report came in with zero jobs added for the entire month of August, a level that was far less than consensus estimates. Now, post-Labor-Day trading in the US has delivered fresh fears about global debt.

So with September keeping the hits coming, investors are furiously scrambling to their favorite safe havens. While some have left equities altogether, many are simply looking for alternative safe options without moving their portfolio into asset classes like fixed income.

Below, we outline five ETFs with low betas for investors looking for stable equities in an environment that is anything but.

Advisorshares Trust Dent Tactical ETF (DENT)

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This product is an active ETF from AdvisorShares which seeks to achieve its investment objective by identifying, through proprietary economic and demographic analysis, the overall trend of the US and global economies and how consumer spending patterns may change based on this analysis.

Like many active products from this issuer, the holdings are updated on a daily basis on the fund’s home Web site, allowing for complete transparency. Though DENT does charge a rather significant fee of 1.50%, its beta of 0.3 not only makes for a compelling safe haven, but also comments on the ability of active funds to outperform their passive counterparts in particular market environments.

NEXT: 4 More Low-Risk ETFs


Global X Food ETF (EATX)

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EATX is a relatively young fund, debuting in May of this year, that offers a compelling investment thesis. The product tracks a benchmark designed to measure the performance of the food industry, making this ETF a rather unique choice.

Top holdings in EATX include Nestle (NSRGY), Kraft Foods (KFT), Kellogg Company (K), and General Mills (GIS). With a number of its holdings selling food that consumers will buy despite market conditions, it should come as no surprise to see its beta come in at a low 0.55. As a low-beta product with a number of consumer staples in its holdings, EATX has a lot of potential in this shaky market setting.

EG Shares Emerging Markets High Income Low Beta ETF (HILO)

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HILO made its debut on August 4, just about the worst time possible for any product to hit the market. But with its compelling methodology, the fund has already attracted massive investor attention, trading an average of approximately 38,400 shares each day.

The fund invests in a number of different countries, with Malaysia, South Africa, and Brazil leading the way. Though there is no official beta available for this young product, it has certainly caught the eyes of many because it promises stability in markets where there is none. Those seeking a low-beta option should give HILO a closer inspection to see if it is right for them.

NEXT: 2 More Steady ETFs for Rocky Markets


PowerShares S&P 500 Low Volatility Portfolio (SPLV)

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This fund seeks to replicate a benchmark that consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months. Top holdings in the fund include Southern Co. (SO), Consolidated Edison (ED), and Johnson & Johnson (JNJ).

The ETF may be young, but its low-volatility strategy has already amassed $235 million in assets and has a robust average daily volume of 378,600 shares in the trailing month.

Tracking low volatility inevitably leads to low beta, as SPLV comes with a reading of 0.73, giving the fund a low correlation to other, rockier equities.

Select Sector SPDR - Consumer Staples (XLP)

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The consumer staples SPDR is an obvious choice for today’s markets, as it seeks to invest in companies that offer necessities that every consumer needs for their everyday lives. That strategy yields holdings like Phillip Morris (PM), Procter & Gamble (PG), Wal-Mart (WMT), and Kraft Foods (KFT).

This ETF, which offers a beta of just 0.63, has performed well this year, with a return of about 5%, all while paying out a healthy dividend yield of 1.47%. For investors looking for a product with a longer track record, XLP will offer both stability and peace of mind, as the fund has been trading since 1998.

By Jared Cummans of ETFdb.com

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