In a previous blog, we discussed “volatility fear Index (VIX)” and how we can use it to manage and hedge some of our portfolio exposures. There is another investment option that can be used to dampen the volatility while maintain investing during a market downturn: Low Volatility Fund.
If you are an ETF investor, there are over 20+ low volatility index ETF to pick from. Below are some examples:
- Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
- iShares MSCI USA Min Volatility Factor ETF (USMV)
- Invesco S&P 500 Low Volatility ETF (SPLV)
- Fidelity Low Volatility Factor ETF (FDLO)
- Invesco S&P Emerging Markets Low Volatility ETF (EELV)
- iShares MSCI Emerg Mkts Min Volatility Fctr ETF (EEMV)
- Invesco S&P Intl Dev Low Volatility ETF (IDLV)
- iShares MSCI EAFE Min Volatility Factor ETF (EFAV)
- iShares MSCI Global Min Volatility Factor ETF (ACWV)
- DeltaShares S&P 400 Managed Risk ETF (DMRM)
- DeltaShares S&P Intl Managed Risk ETF (DMRI)
- Invesco S&P SmallCap Low Volatility ETF (XSLV)
- SPDR SSGA US Small Cap Low Volatility ETF (SMLV)
- iShares MSCI USA Sm-Cap Min Vol Factor ETF (SMMV)
There are less choices if you can only purchase mutual fund
- Fidelity SAI U.S. Low Volatility Index Fund (FSUVX)
- Fidelity SAI International Low Volatility Index Fund (FSKLX)
- Fidelity SAI Emerging Markets Low Volatility Index Fund (FGKPX)
- Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX)
- Spectrum Low Volatility Investor (SVARX)
While it is a choice to reduce volatility, the trade-off is on the performance. Here is an example of comparing S&P 500 index vs Fidelity SAI U.S. Low Volatility Index Fund (FSUVX).
From Jan 2016 – Sep 2020, here is the comparison
| SPY | FSUVX | |
| CAGR | 13.20% | 12.26% |
| Stdev | 14.75% | 12.10% |
| Best Year | 31.22% | 27.70% |
| Worst Year | -4.56% | 1.39% |
| Sharpe Ratio | 0.84 | 0.92 |