It has been a wild start to 2022. After a strong finish to 2021 — with the S&P 500 finishing higher by more than 25% — we saw new highs in the index within the first few days of the year. Then came the volatility, leaving many investors looking for funds to buy where they wouldn’t get whiplashed.
The selling came on fast and strong, all while growth stocks and cryptocurrencies were encapsulated in a bear market. Thanks to a robust two-day rally at the end of January, the Nasdaq Composite narrowly avoided its worst January performance in its 50-year history.
The volatility is coming from all angles. Investors are worried about geopolitical risks in Europe and multiple rate hikes from the Federal Reserve. Driving the latter is inflation, which is stuck at a multi-decade high. Additionally, oil prices continue to climb — due both to inflation and geopolitical issues — which acts as a “hidden tax” on consumers.
Overall, it’s a tough environment right now, there’s no question about that. However, that doesn’t mean there aren’t funds to buy. In fact, these seven in particular have sidestepped some of the volatility.
- Legg Mason International Low Volatility High Dividend ETF (BATS:LVHI)
- ProShares Merger ETF (BATS:MRGR)
- Invesco S&P Emerging Markets Low Volatility ETF (NYSEARCA:EELV)
- SPDR Portfolio S&P 500 Value ETF (NYSEARCA:SPYV)
- Fidelity Freedom® 2025 Fund (MUTF:FFTWX)
- Fidelity Freedom® 2015 Fund (MUTF:FFVFX)
- Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B)
So, with all of that in mind, let’s dive in and take a closer look at each one.
Funds to Buy: Legg Mason International Low Volatility High Dividend ETF (LVHI)
Generally but not always, high-quality businesses are the ones that can shoulder volatility better than the rest of the market. That’s because the businesses tend to be more mature and stable, while the stock’s valuation tends to be lower. Furthermore, many of the stocks tend to pay a dividend, which helps shareholders stick around.
That has us turning our attention to an exchange-traded fund (ETF) — the Legg Mason International Low Volatility High Dividend ETF.
Overall, the LVHI ETF is actually down a little more than 1% so far in 2022. And while we don’t normally write about securities with a 1% year-to-date (YTD) loss, it vastly outshines the S&P 500 and Nasdaq Composite. Those are down 8.3% and 13% so far in 2022, respectively. In that respect, any near–positive return is a good one.
Upon closer inspection, investors will see that the LVHI ETF also pays out a dividend yield of 4.7%. Plus, it offers diversification, even though its predominately a large-cap ETF. For example, a little more than 15% of the securities held in the fund are from the U.K., while its top 10 holdings are a diverse mix of global companies spanning multiple continents.
ProShares Merger ETF (MRGR)
When we look at the ProShares Merger ETF, it’s actually down slightly on the year. But a 1.5% loss hardly compares to the 13% loss we’re seeing in the Nasdaq right now.
At the low, the MRGR fund was down 3% from its high in November. Conversely, the Nasdaq was down almost 20%. That said, this isn’t a normal fund. It doesn’t just target regular companies with the goal of reducing volatility. Instead, it tracks “the performance of the S&P Merger Arbitrage Index.”
What does that mean exactly? Well…
“The S&P Merger Arbitrage Index provides exposure to a global merger arbitrage strategy, which seeks to capture the spread between the price at which the stock of a company (each such company, a “target”) trades after a proposed acquisition of such target is announced and the value (cash plus stock) that the acquiring company (the “acquirer”) has proposed to pay for the stock of the target (a “spread”).”
The MRGR ETF does not generate massive, market-beating returns. In fact, it has averaged just a 3.5% annual return over the last five years.
So while a 3.5% gain may be disappointing when the S&P 500 is ripping, a modest gain or slight loss is a great capital preserver when times are tough.
Funds to Buy: Invesco S&P Emerging Markets Low Volatility ETF (EELV)
Shifting strategies back to a more well-known approach, the Invesco S&P Emerging Markets Low Volatility ETF boasts a strong start to 2022. The ETF is up 4.7% so far on the year, easily crushing the indices.
On top of a market-beating return so far, the ETF also packs a 2.5% dividend yield as well. Additionally, the ETF is predominantly skewed toward equities in Asia, with the continent making up a large majority of the fund’s holdings.
Moreover, this fund continues to do well. It continues to outperform other emerging market funds, mainly because it has a focus on low-volatility assets and businesses. Also, its outperformance comes at a time when emerging markets are on watch amid geopolitical issues in Eastern Europe.
Over the last five years, the EELV fund has averaged a 7.4% annual return. So coupled with lower volatility and surprising outperformance this year, the ETF also tends to generate solid annual returns as well.
SPDR Portfolio S&P 500 Value ETF (SPYV)
Next we have a good old-fashioned value fund with the SPDR Portfolio S&P 500 Value ETF.
With an expense ratio of just 0.04%, there truly is some value in this fund. Furthermore, a yield of roughly 2.1% also helps soften the blow a bit vs. some of the market’s more volatile holdings.
While the SPYV fund is down 2.6% so far on the year, that’s vastly better than the S&P 500’s performance. Additionally, both the index and the SPYV are up about 13% over the past 12 months.
So although they have similar gains — and the SPYV admittedly lagged a bit on the upside — it’s having a much better time enduring on the downside. With its top holdings nestled in Berkshire Hathaway, Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG), Exxon Mobil (NYSE:XOM) and the like, it’s no wonder it’s been more stable than the broader market.
Let’s see if this fund turns higher once funds start to flow back into the equities market.
Funds to Buy: Fidelity Freedom 2025 Fund (FFTWX)
Let’s dive into some mutual funds, starting with the Fidelity Freedom 2025 Fund. I really like this fund because its diversifies its holdings and actively rebalance them to become less volatile and risky as investors inch closer to retirement.
This fund is for people that plan to retire in 2025. However, you don’t have to be retiring at all to be able to invest in these funds. With a $0 minimum investment, these funds are quite accessible for those that want a safer allocation to the markets.
It can act as a pillar or foundation in one’s portfolio and doesn’t need to be an investor’s sole exposure to the equities market.
Currently, the FFTWX fund is comprised of roughly 60% equities, with a 30% allocation to U.S. equities and a 28.6% allocation to non-US securities. The other 38,5% is bonds, with a majority of that allocation in Fidelity’s Series Investment Grade Bond Fund (MUTF:FSIGX).
Given its allocations, the 2025 Fund is not up on the year. However, down “just” 5.5% on the year and the volatility has been much easier to stomach.
Fidelity Freedom 2015 Fund (FFVFX)
Are investors looking for even less volatility? If so, consider lowering the target year. Again, we do not need to be retiring to purchase shares in the Fidelity Freedom funds. They are simply ways to take an allocated approach to a basket of equity and bond positions.
In this case, investors can also consider the 2020 fund — the Fidelity Freedom 2020 Fund (MUTF:FFVFX) — but I wanted to make a more significant move, to highlight the differences in allocations.
In this fund, the allocation is almost flipped vs. the 2025 fund. The 2015 fund is 48.9% in bonds and 43% equities. For the latter, it’s split between U.S.-based and non-U.S. securities at 20.7% and 22.1%, respectively.
On the bonds front, the FFVFX has a much larger allocation toward short-term debt. Almost 7% of the fund’s assets are in a government money market fund, with almost all of the rest of the short-term funds being stashed in a short-term credit fund.
Given its safer allocations, the 2015 fund is down 4.5% on the year.
Funds to Buy: Berkshire Hathaway (BRK-A, BRK-B)
Last but not least, we don’t have a fund per se. However, the way Berkshire Hathaway operates, it essentially acts as a giant fund. It’s a conglomerate of public and private companies accumulated by Warren Buffett and Charlie Munger.
On the private side of things, it owns companies like BNSF Railway, Geico, Precision Castparts and many more.
When it comes to Berkshire’s portfolio of public companies, it comprises many well-known brands. As we all know, Buffett has taken a real interest in Apple (NASDAQ:AAPL) and as such, Berkshire has accumulated a truly massive position in the company. The firm’s stake sits at almost $160 billion, and also owns a fair amount of American Express (NYSE:AXP), Coca-Cola (NYSE:KO), Verizon (NYSE:VZ) and a handful of banks, among many others.
As it pertains to the actual stock’s performance, Berkshire has done quite well. Over the past year, Berkshire stock is up 31% vs. a 13% gain for the S&P 500. So far this year, shares are actually up more than 9% vs. a more than 8% decline for the index.
Lastly, the company has almost $150 billion in cash and securities despite buying back more than $50 billion worth of its own stock last year.
On the date of publication, Bret Kenwell held a long position in FFTWX, FFFDX and FFVFX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.