There was a time when low-volatility exchange-traded funds (ETFs) were all the rage. However, when you have a market environment where the leading index, the S&P 500, gains double-digit annual returns in seven of the last 11 years, including 20% or higher gains in three of the last five years, low-volatility ETFs aren’t going to gain much traction. 

In February 2022, InvestorPlace published an article about low-volatility stocks given the turbulent markets at the time. “It’s beneficial to focus on adding low volatility stocks to your core portfolio. Stable investment positions may dampen risk while maintaining respectable growth potential to improve your chances of meeting long-term investment objectives,” InvestorPlace contributor Brian Paradza wrote.

Barron’s recently ran a story about volatility returning to the markets. However, it’s not because of doom and gloom but rather the massive rotation out of artificial intelligence (AI) and large-cap tech stocks and into smaller companies and other investments. Lower interest rates down the road and dampened inflation would seem to suggest stocks will continue to move higher. 

If you’re skeptical and think a stock market crash is just around the corner, here are three low-volatility ETFs to buy for downside protection. 

Vanguard US Minimum Volatility ETF (VFMV)

Vanguard US Minimum Volatility ETF (BATS:VFMV) is a tiny fund by Vanguard standards with just $105 million in net assets. Founded in February 2018, it has seen 9.01% annual returns since it was launched over six years ago.  

I chose this particular ETF because it charges 0.13% for an active ETF managed by Vanguard’s global head of Vanguard’s Quantitative Equity Group, John Ameriks, and Scott Rodemer, the Head of Equity Factor Investments.

The goal of the ETF is simple: to generate long-term capital appreciation with lower volatility relative to the broad U.S. equity market. You’ll notice that it can invest in any U.S. stock. As a result, its 150 stocks have a median market cap of $60.3 billion, about one-third its benchmark, the Russell 3000.

The top three sectors by weight are technology (24.5%), consumer discretionary (14%) and healthcare (12.6%). The fund is made up of 50% large-cap stocks, 14% mid-caps and 36% small-caps. 

With small-caps starting to thrive, VFMV’s performance should pick up.  

Invesco S&P Emerging Markets Low Volatility ETF (EELV)

Invesco S&P Emerging Markets Low Volatility ETF (NYSEARCA:EELV) is a little larger than VFMV with $433.5 million in net assets. 

Founded in January 2012, it’s gathered an average of just $34.3 million since inception, including 3.7% annual returns since it was launched over 12 years ago. That’s better than its benchmark, the MSCI Emerging Markets Index. 

The fund tracks the performance of the S&P BMI Emerging Markets Low Volatility Index, an index that measures the performance of the 200 least volatile stocks (over the trailing 12 months) in the S&P Emerging Plus LargeMidCap Index. 

“Volatility is a statistical measurement of the magnitude of up and down asset price fluctuations (increases or decreases in a stock’s price) over time,” states EELV’s prospectus. “S&P DJI measures the realized volatility of the Underlying Index’s constituents over the trailing 12 months and weights constituents so that the least volatile stocks receive the highest weights.”

To make the cut, a stock must have a float-adjusted market capitalization of at least $100 million. The stocks in the index include market caps from $975 million to $2.1 trillion from 24 emerging market countries.

Charging 0.29%, it’s a reasonable price to pay to invest in emerging markets while also providing lower volatility. 

ALPS O’Shares US Small-Cap Quality Dividend ETF (OUSM)

ALPS O’Shares US Small-Cap Quality Dividend ETF (BATS:OUSM) is the largest of the three funds on this list of low-volatility ETFs with $682 million in net assets. It’s been around since December 2016, gathering an average of $90.2 million since inception, including 9.08% annual returns since it was launched over seven years ago. 

Unlike the other two ETFs, which have significant large-cap holdings, OUSM owns high-quality, low-volatility, dividend-paying U.S. companies. It tracks the performance of the  O’Shares U.S. Small-Cap Quality Dividend Index, which bases its selections on quality, low volatility, dividend yield and dividend quality. 

The stocks are chosen from the S-Network US Equity Mid/SmallCap 2500 Index. The index is rebalanced quarterly and reconstituted annually. Each stock is capped at 2% at rebalancing. 

The fund currently owns 106 stocks with the top 10 representing 20% of net assets. The top three sectors by weight are financials (23%), consumer cyclical (22%) and industrials (21%).

It charges 0.48%, which is reasonable given its performance has been good relative to small-cap stocks in general since its inception in late 2016. Of the three low-volatility ETFs on this list, OUSM is the most intriguing.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not hold (either directly or indirectly) any positions in the securities mentioned in this article.