5 Low Beta ETFs For A Volatile Market

Jared Cummans ETF Database September 6, 2011

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by Jared Cummans on September 6, 2011 | ETFs Mentioned: DENT • EATX • HILO • SPLV • XLP

To call the last few weeks volatile would be an understatement. Markets have some of their most violent trading days in recent memory, as the beginning of August brought multiple days with swings higher than 5% in major equities indices. Amid a botched debt negotiation and a downgrade of U.S. debts by Standard and Poor’s, investors have been on something of a roller coaster ride as of late. While many hoped that September would bring markets into the black, they were unfortunately let down. Just two days into the month, a dismal report came in with zero jobs added for the entire month of August, a level that was far less than consensus estimates [see also Three ETFs Down Over 30% In 2011].

So with September keeping the hits coming, investors are furiously scrambling to their favorite safe havens. While some have left equities altogether, many are simply looking for alternate, safer, option without moving their portfolio into asset classes like fixed income. Below, we outline five ETFs with low betas for investors looking for stable equities in an environment that is anything but.

This product is an active ETF from AdvisorShares which seeks to achieve its investment objective by identifying, through proprietary economic and demographic analysis, the overall trend of the U.S. and global economies and how consumer spending patterns may change based on this analysis. Like many active products from this issuer, the holdings are updated on a daily basis on the fund’s home website, allowing for complete transparency. Though DENT does charge a rather significant fee of 1.50%, its beta of 0.3 not only makes for a compelling safe haven, but also comments on the ability of active funds to outperform their passive counterparts in particular environments [see also Complete List Of Active ETFs].

EATX is a relatively young fund, debuting in May of this year, that offers a compelling investment thesis. The product tracks a benchmark designed to measure the performance of the food industry, making this ETF a rather unique choice. Top holdings in EATX include Nestle, Kraft, Kellogg Company, and General Mills. With a number of its holdings selling food that consumers will buy despite market conditions, it should come as no surprise to see its beta come in at a low 0.55. As a low-beta product with a number of consumer staples in its holdings, EATX has a lot of potential in this shaky market setting.

HILO made its debut on August 4th, just about the worst time possible for any product to hit the market. But with its compelling methodology, the fund has already attracted massive investor attention, trading an average of approximately 38,400 shares each day. The fund invests in a number of different countries, with Malaysia, South Africa, and Brazil leading the way. Though there is no official beta available for this young product, it has certainly caught the eyes of many as it promises stability in markets where there is none. Those seeking a low-beta option should give HILO a closer inspection to see if it is right for them [see also Not Just EEM & VWO: Emerging Markets ETF Options].

This fund seeks to replicate a benchmark that consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months. Top holdings in the fund include Southern Co., Consolidated Edison, and Johnson & Johnson. The ETF may be young, but its low volatility strategy has already amassed $235 million in assets and has a robust ADV of 378,600 shares in the trailing month. Tracking low volatility inevitably leads to low beta, as SPLV comes with a reading of 0.73, giving the fund a low correlation to other, rockier, equities.

The staples SPDR is an obvious choice for today’s markets, as it seeks to invest in companies that offer necessities that every consumer needs for their everyday lives. That strategy yields holdings like Phillip Morris, Procter & Gamble, Wal-Mart, and Kraft Foods for XLP. This ETF, which offers a beta of just 0.63, has performed well this year, with a return of about 5% while paying out a healthy dividend yield of 1.47%. For investors looking for a product with a longer track record, XLP will offer both stability and piece of mind, as the fund has been trading since 1998 [see also ETFs & Sector Rotation: Large Cap, Small Cap, Or International?].

[For more ETF ideas sign up for our free ETF newsletter.]

Disclosure: Photo courtesy of Michael Rogers. No positions at time of writing.

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5 Low Beta ETFs For A Volatile Market

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