Since long term investing is all about pushing through market volatility, if you have been hit by the market, you should consider not leaving the market, and instead buying into diversified exchange-traded funds, also simply called ETFs. Here are two such ETFs that try to limit volatility while also seeking to give market-stomping performance.
SPDR MSCI USA
The SPDR MSCI Strategic Factors (QUS) has an “enhanced indexing strategy,” where it puts money into an index depending on particular factors. It then bets its money on stocks with less volatility and that are well valued, with the goal of providing returns that go further than traditional indexes with lower risk. It is a formation of three indexes — the MSCI Quality, the MSCI Value Weighted and the MSCI Minimum Volatility, all proportioned equally.
Because it is based on three different indexes, it is diversified well, containing 620 companies. I believe this fund is among the top low-volatility ETFs. It does not have a track record like other ETFs, but the profits have remained steady since its start in 2015. This year it is higher by 12% ytd, which is better than the S&P 500 index. Over the previous five years it has given an annual 16.1%, which is slightly under the S&P. But remember, this fund was starting during a long bull market. It revealed its value in 2018 when it was under only 3% while the S&P 500 was down more than 6%. Given more track record, this ETF could stand out for investors not wanting volatile markets.
Invesco Equal Weight
The Invesco S&P 500 Equal Weight Technology ETF (RYT) is somewhat different from typical technology ETFs. It puts its money into big tech companies that drive the market over the past 10 years, but as it is weighted equally, it has more diversity and less risk than its competitors.
This ETF is aligned with the S&P 500 Equal Weight Information Technology Index, so it is invested into the 75 top tech stocks. But while most ETFs are weighted to the market, meaning the bigger the cap the bigger the stake, this fund is equally-weighted, and no holding is bigger than 1.64%. For investors who are looking to invest in tech but are worried about volatility, this is an excellent choice.
The fund has given great returns that beat the S&P 500 after it started in 2006. It is higher by around 10% ytd through May 27, which is just under the 11% ytd return of the S&P 500. But over the past five- and 10-year time frame, it has given 27.1% and 18.5%, respectively. Since its launch this fund has given a great average annual return of 14.3%. The expense ratio is just 0.40%, which is under the average for the category.
Author: Blake Ambrose