Exchange-traded funds (ETFs) like the FlexShares US Quality Low Volatility Index Fund (QLV) can not only protect investors against future volatility, but can also capture the upside of a trending market.
“Investing in low volatility stocks is often used as a defensive strategy by investors who wish to participate in a portion of the growth of the market while potentially reducing their downside risk,” said a Focus article on FlexShares funds mentionned.
QLV is not a single ride pony. The fund’s strategy can climb further in an uptrend, as evidenced by its 13% gain since the start of the year.
“Low volatility strategies can be a useful defensive strategy for investors who wish to reduce potential portfolio declines during market downturns, while continuing to capture some of the gains that occur during positive markets,” added Fund Focus.
QLV seeks to achieve investment results that generally match the price and performance, before fees and expenses, of the Northern Trust Quality Low Volatility Index. The Underlying Index is designed to reflect the performance of a selection of companies which, on the whole, have lower overall absolute volatility characteristics compared to the Northern Trust 1250 Index, a market weighted index. Free float-adjusted market capitalization of large and mid-cap US companies. companies.
Capture the upside during periods of low volatility
The current market environment shows signs of low volatility. It could be the calm before the storm, or an opportunity to capture more potential. QLV should shine either way.
“The VIX index, the so-called market fear gauge, recently fell to around 16 points,” a Market Research Telecast article said. “This number is below the average of 19 points since 1991. The VIX reflects the amount of volatility traders expect to see. the US S&P 500 stock market index for the next 30 days.
“The recent calm in the markets has raised alarm bells among some investors for fear of complacency,” the article said. “However, if we look back, investors would not have been wise to sell stocks purely on the basis of a low VIX.”
While investors may be tempted to sell stocks that don’t move, sometimes the best strategy is to be adamant.
“On average, the S&P 500 generated about a 15% return in the 12 months following a VIX reading of 16,” the article adds. “Rather than being an opportune time to sell, this is historically the time he performed best.”
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