Volatility in the stock market has accelerated lately with the CBOE Volatility Index (VIX) hitting the highest level of 2017. The fear gauge, which measures investors’ perception of market risk, climbed 15.7% over the past three sessions. This suggests that investors have started to panic.  

The crucial Obamacare replacement healthcare bill vote, which is being seen as a testament to Trump’s agenda, is a cause of concern. This is because the President has prioritized the healthcare reform over the tax reform, which will not come until a plan to replace and repeal Obamacare is chalked out. As such, the failure to garner votes to dismantle the Affordable Care Act has raised doubts over Trump’s ability to deliver on tax cuts, deregulation and infrastructure spending that has pushed the stock market to new highs. This has unnerved investors, making them cautious in recent trading sessions.

Due to the opposition from some Republicans, the vote was delayed by a day with Trump’s ultimatum to House Republicans to either vote for the bill on March 24 or stay with Obamacare.  

Additionally, the stocks appear overvalued after an astounding rally post-election. As per the latest survey from Bank of America Merrill Lynch, about 34% of the respondents believe that U.S. equities are overvalued, and are at the highest level in the history of the survey that goes back 17 years. Further, 81% believe the U.S. is the most expensive region compared with the other parts of the world.  

How to Play?

Amid heightened uncertainty, investors seeking to remain invested in the equity world could consider low risk ETFs by investing in low volatility or low beta products. 

Low volatility ETFs have the potential to outpace the broader market in bearish market conditions or in an uncertain environment providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate higher to the defensive sectors that usually have a higher distribution yield than the broader markets.

Meanwhile, low beta ETFs tend to exhibit greater levels of stability than their market-sensitive counterparts, and usually lose less when the market is crumbling. Though these have lower risks and lower returns, the funds are considered safe and resilient in rocky markets.

Given this, we have presented five ETFs that could be solid options for investors in the current choppy market.

iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)

This fund offers exposure to 183 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. It is well spread across a number of securities with none holding more than 1.53% of assets. From a sector look, health care, information technology, consumer staples, and financials take the top four spots with a double-digit allocation each. With AUM of $12.4 billion, the product charges 0.15% in expense ratio and trades in solid average daily volume of 2.8 million shares. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.

PowerShares S&P 500 Low Volatility Portfolio (SPLV - Free Report)

This ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. It tracks the S&P 500 Low Volatility Index and holds 100 securities in its basket with none accounting for more than 1.45% of assets. Utilities, consumer staples, industrials and financials make up the top four sectors with a double-digit allocation each. SPLV has amassed $6.5 billion in its asset base and trades in heavy volume of around 2.3 million shares a day on average. It charges 25 bps in annual fees and has a Zacks ETF Rank of 2 with a Medium risk outlook.

PowerShares Russell 1000 Low Beta Equal Weight Portfolio (USLB - Free Report)

This fund seeks to track the performance of the Russell 1000 Low Beta Equal Weight Index, holding 443 stocks exhibiting low beta characteristics. It is widely diversified across components with each security accounting for less than 0.5% of assets. The top five sectors – consumer discretionary, financials, information technology, industrials and real estate – receive a double-digit allocation each. USLB has accumulated $162.2 million and charges 35 bps in annual fees. Volume is light, exchanging under 10,000 shares per day on average. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

First Trust Horizon Managed Volatility Domestic ETF (HUSV - Free Report)

HUSV is an actively managed ETF providing exposure to 70 domestic stocks that seem to exhibit low future expected volatility. It is also widely diversified with none holding more than 3.81% of assets and the top five sectors accounting for a double-digit allocation each. It has amassed $59.54 million in its asset base within seven months of debut but sees lower average daily volume of 29,000 shares. Expense ratio comes in at 0.70%.  

Fidelity Low Volatility Factor ETF (FDLO - Free Report)

This fund offers exposure to the stocks with lower volatility than the broader market by tracking the Fidelity U.S. Low Volatility Factor Index. Holding 128 stocks in its basket, it is well spread across components with none holding more than 3.04% share. From a sector look, the ETF is skewed toward the information technology sector at 21.5% while financials, healthcare, consumer discretionary and industrials round off the next four spots with a double-digit allocation each. Since its debut in September, the fund has been able to garner just $20.2 million in AUM so far and average daily volume is also low at 11,000 shares. FDLO charges 29 bps in annual fees from investors.

Bottom Line

These products could be worthwhile for low risk tolerance investors and have the potential to outperform the broad market, especially if market uncertainty persists over the coming months.