Since the start of October, the S&P 500 has tumbled about 9.50%, erasing its 2018 gains and dangerously flirting with the official definition of a correction. That slide confirms that equity market weakness that started in October has seeped into November, which is confirmed by a nearly 4% November slide for the S&P 500.
Recent increases in equity market volatility serve as reminders that for many investors, the best strategies are slow and steady, not volatile ideas that can deliver big gains or losses in short time frames. The universe of ETFs offers hundreds of products of slow and steady investors and not all of those ideas are low-volatility strategies.
With an eye toward 2019, here are some of the best ETFs to consider for investors looking to dodge volatility while bolstering their portfolios for the long term.
Invesco S&P SmallCap 600 Pure Value ETF (RZV)
Expense ratio: 0.35% per year, or $35 on a $10,000 investment.
The small-cap trade, which was a glamour trade for much of 2018, quickly unraveled, so the Invesco S&P SmallCap 600 Pure Value ETF (NYSEARCA:RZV) may not be the best ETF to buy right now. From its 52-week high set in August, RZV has tumbled more than 21%, officially putting this ETF in a bear market.
However, the combination of small size and value has historically been one of the most potent factor combinations. Confirming as much is RZV’s status as one of the best ETFs during the course of the current bull market in stocks. The $155.20 million RZV tracks the S&P SmallCap 600 Pure Value Index.
In that index, “value is measured by the following risk factors: book value-to-price ratio, earnings-to-price ratio and sales-to-price ratio,” according to Invesco.
Of the 159 stocks in RZV, over 31% are consumer discretionary names, explaining in large part the fund’s recent weakness. Industrial and financial services stocks combine for 30% of RZV’s weight.
Invesco S&P 500 Quality ETF (SPHQ)
Expense ratio: 0.15% per year, or $15 on a $10,000 investment.
During times of elevated market stress, investors often turn to low-volatility ETFs. And the value factor has been receiving some renewed fanfare due to the deteriorating state of growth and momentum stocks. However, some of the best ETFs to consider provide exposure to quality stocks, including the Invesco S&P 500 Quality ETF (NYSEARCA:SPHQ).
SPHQ merits consideration as one of the best ETFs because as the broader market has swooned since the start of the fourth quarter, SPHQ and other dedicated quality funds have been less bad than broader benchmarks. Three metrics — return on equity, accruals ratio and financial leverage ratio — are taken into account in SPHQ’s weighting methodology.
SPHQ’s ability to be less bad than the S&P 500 in recent weeks is somewhat surprising given this ETF’s significant overweight position (34.29%) in technology stocks. On the other hand, SPHQ is one of the best ETFs for a rocky environment because many of its 99 holdings have strong credit ratings, robust balance sheets and the ability to initiate or grow dividends.
JPMorgan Ultra-Short Income ETF (JPST)
Expense ratio: 0.18% per year, or $18 on a $10,000 investment.
As a short-term bond ETF, the JPMorgan Ultra-Short Income ETF (CBOE:JPST) is one of the best ETFs for slow and steady investing. It is also one of the best ETFs for the current fixed-income environment.
JPST’s duration is barely more than a half year, but the fund is able to capture a massive portion of the yield offered by the popular Bloomberg Barclays Aggregate Bond Index with significantly less interest rate risk. Investors are taking note of JPST as one of the best ETFs for this bond climate as highlighted by its $3.94 billion in assets under management, of which about $3.50 billion has flowed into the fund just this month.
JPST holds almost 620 bonds and has a 30-day SEC yield of 2.71%, which is impressive among ultra-short duration products. With an annual fee of just 0.18%, JPST is cost-effective among actively managed bond funds.
Fidelity Dividend ETF for Rising Rates (FDRR)
Expense ratio: 0.29% per year, or $29 on a $10,000 investment.
On multiple levels, the Fidelity Dividend ETF for Rising Rates (NYSEARCA:FDRR) is proving to be one of the best ETFs. As its name implies, FDRR is designed to provide exposure to dividend stocks, which can be sturdy in the face of rising interest rates.
With the Federal Reserve having raised interest rates three times with another hike likely coming in December, FDRR’s strategy is already battle-tested despite the ETF being just over two months old. Additionally, FDRR has been one of the best ETFs in recent weeks, performing less poorly than the S&P 500 since the start of October, an notable fact considering the fund’s nearly 25% weight to the technology sector.
FDRR is also one of the best ETFs for income investors seeking the combination of decent yield and dividend growth prospects. The fund has a trailing 12-month yield of 3.22% and many of its 108 holdings have dividend increases streaks that can be measured in decades.
iShares Core Conservative Allocation ETF (AOK)
Expense ratio: 0.25% per year, or $25 on a $10,000 investment.
The iShares Core Conservative Allocation ETF (NYSEARCA:AOK) is explicitly positioned as a conservative idea, making it one of the best ETFs for investors looking for long-term capitalization appreciation, income and an avenue for reducing portfolio volatility.
AOK targets the S&P Target Risk Conservative Index and its seven holdings are other iShares ETFs, including the iShares Core Total USD Bond Market ETF (NASDAQ:IUSB) and the iShares Core S&P 500 ETF (NYSEARCA:IVV).
Currently, over 69% of AOK’s weight is allocated to bond funds, giving the fund a three-year standard deviation of just 3.80%, which is below what is found on equity indexes. AOK is proving to be one of the best ETFs in November — it’s down just 1.44%.
Todd Shriber does not own any of the aforementioned securities.
