The stock market has gone on a roller-coaster ride lately, with the S&P 500 (^GPSC) having plunged almost 7.5 percent in a four-week span and the Dow Jones industrials (^DJI) falling more than 1,100 points between mid-September and mid-October. With the return of market volatility, many investors feel nervous about the prospects for their future returns and don’t want to run the risk of further losses.
All stock investments involve risk, but some exchange-traded funds aim at market segments that tend to be less prone to big swings. By investing in these ETFs, you might be able to get all or most of the return potential of a broader-market investment without all the bumps in the road. Let’s look at how three ETFs have done during this drop.
iShares MSCI USA Minimum Volatility ETF (USMV)
This iShares ETF seeks to provide exposure to U.S. stocks with a reduced risk profile, with the goal of minimizing the stock market’s ups and downs. In explaining why an investor might want to own this ETF, iShares points out that it may help reduce your losses during declining markets but still produce positive returns when the stock market goes up.
It’s important to understand that minimum volatility funds like the iShares ETF won’t eliminate downdrafts but will only reduce their impact. Even with that warning, though, so far during the latest market turbulence, the iShares ETF has delivered on its investment objective. Its decline of just 3.5 percent is less than half of the broader market’s drop, showing the value of a portfolio rich in health care and consumer stocks. With relatively small allocations to hard-hit sectors like energy and materials, the iShares ETF will continue to outperform as long as the recent crosscurrents in the market continue to favor its core portfolio.