
6 Tips for Trading ETFs in Volatile Markets
Learn about our six best practices for trading ETFs during market volatility and uncertain times.
Combining a low-volatility ETF with your other holdings could potentially maximize the performance of your overall portfolio.
The more a stock’s price falls, the more it has to gain just to get back to even — this simple math explains the appeal of the Low Volatility factor. It seeks to participate in up markets and cushion the blow of down markets. Today, many people feel that the market is at risk of a downturn after so many years of a historic bull market. If you’re concerned about what’s to come, now may be the time to consider Low Volatility.
The Low Volatility factor exists in US and international stocks, and across the market-cap spectrum, so it can play a role across asset classes.
And, as the chart below shows, it has a particularly low historical correlation with the Value factor, and negative correlation with the Quality and Momentum factors. Therefore, it may potentially help to diversify portfolios that are concentrated in these areas.
No, not all Low Volatility factor approaches are alike. For example – some have sector constraints, meaning that they must maintain at least some exposure to each sector at all times. So, if one sector is particularly volatile, that may result in a higher volatility stock being included in the portfolio over a lower volatility stock in a different sector.
Other strategies use a “pure” approach, meaning that the lowest volatility stocks are included in the portfolio, with no constraints. Such portfolios are generally rebalanced on a regular schedule (such as quarterly), to ensure that holdings can be adjusted as volatility changes.
Those who want full exposure to what the Low Volatility factor has to offer may want to consider a pure approach. Such an approach may help investors avoid major sector downturns and bubbles. During the technology bubble of 2000 and the financial crisis of 2008, a sector-constrained portfolio could have resulted in extended exposure to out-of-favor sectors.
Learn more about the “pure” approach of Invesco’s Low Volatility suite of products.
Explore SPLV.
Discover how each factor performs in different market environments and gain helpful insights from our investment teams.
6 Tips for Trading ETFs in Volatile Markets
Learn about our six best practices for trading ETFs during market volatility and uncertain times.
Don't Overreact
Trying to time the market may do more long-term damage to your portfolio than any short-term market decline.
Consider Low Volatility ETFs
Discover how each factor performs in different market environments and gain helpful insights from our investment teams.