3 Low Beta ETFs for This Volatile Market - ETF News And Commentary
April 29 2014 - 9:00AM
Zacks
With overvaluation in the broader equity market looming large over
the market leading to sharp sell-offs in momentum stocks, slowdown
in some big nations like China and an emerging market lull, casting
a shadow over global growth, it hasn’t been a very good time to
invest in equity markets. Most global benchmarks have suffered this
year while a few have managed to stay afloat despite the economic
headwinds.
Amid this backdrop and fears of uncertainty, very few remain fully
invested in equities while many are dialing up exposure to safe
havens or taking some alternative routes. Even with these sluggish
trends, some investing corners, including equities, have held up
pretty well over the past few weeks thanks to their defensive
nature and underlying strength (read: 3 Low Risk ETFs for a Stormy
Market).
Notably, the products that were able to show resiliency of late
mostly have low betas, as funds with low betas often exhibit
greater levels of stability than their more market-responsive
counterparts and generally remain unperturbed when the market
crashes. However, investors should note that when markets march
northward, these low beta funds witness lesser gains than the
broader market.
What is Beta of a Portfolio?
Beta is a good measure to identify risks associated with
funds/stocks. It measures the price volatility of the stocks/funds
relative to the overall market. A stock with a high beta tends to
be more volatile than the market and vice versa.
Generally speaking, a beta of 1 indicates that the price of the
stock/fund tends to move with the broader market. A beta of more
than 1 indicates that the price tends to move more than the broader
market and is extremely volatile, while a beta of less than 1
indicates that the price of the stock/fund is less volatile than
the market.
Below, we have highlighted three low-beta ETFs that have gained
considerably in the past one month, and could be in focus if the
current trend continues.
iPath S&P MLP ETN
(IMLP): 0.11 Beta
Entering the market in January 2013, IMLP looks to track the
S&P 500 index. There are 56 components in the index with more
than 95% of exposure attributed to the energy sector. IMLP has a
very low beta (1 year) of 0.11.
In fact, most of the players in the MLP space exhibit low beta
against the broader market thus making any of the products like
Barclays ETN+ Select MLP ETN
(ATMP) and
E-TRACS Alerian Natural Gas MLP Index
(MLPG) a good pick.
Over the past one month, IMLP returned about 6.46% against the
0.45% gains delivered by
SPDR S&P 500 ETF
(SPY). Investors should also note that MLPs are high-yield vehicles
and with interest rates remaining low to start 2014, the overall
sector had a bull run while the entire market was slumping. The
fund charges 0.80% in expenses per year (read: 3 MLP ETFs Riding
Out Market Volatility).
SuperDividend US ETF
(DIV): 0.41 Beta
Investors looking for current income in their portfolio can
consider this Global X product. The fund follows the INDXX
SuperDividend U.S. Low Volatility Index, holding 50 companies that
have among the highest yields in the U.S, and with a consistent
dividend paying history.
The ETF utilizes an equal weight approach with no single company
accounting for more than 2.23% of the portfolio. Top sectors
include utilities (23%), energy (21%), and telecom (10%). Notably,
utilities and energy have treaded water quite successfully in this
recent market turmoil. The fund provides a high dividend yield of
5.91% while having a moderately low beta of 0.41. DIV was up 3.16%
in the last one month period.
United States 12 Month Natural Gas Fund
(UNL): 0.36 Beta
This is another choice available in the space to play the natural
gas futures market on a daily basis. It is a high cost choice,
charging 75 bps in annual fees. The ETF – which has a beta of 0.36
– added 7.87% last month and looks to be less volatile thanks to
the spread out futures profile of the product (read: Will Natural
Gas ETFs Extend Their Winning Streak?).
U.S. natural gas was recently greeted with a rally and saw the
highest price since February on the news of below-average
stockpiles. Tightening of supplies should keep the commodity in
demand as the U.S. Energy Information Administration (EIA) declared
that the current level of inventory has fallen 54% below the
five-year average. Record yield for another year is required to
reduce the shortfall by October end. Harsh winter since November
dragged down supplies last month to the 11-year low
level.
Bottom Line
In a nutshell, given the market uncertainty in the short term,
investors may find low beta ETFs an intriguing option until
brighter days return. Also, before looking for some low-volatility
metrics like beta, investors should also look around for underlying
sector strength which could shield investors from rough market
movement. As of now, investors can choose from the above-mentioned
low beta ETFs, which could be a worthy investment in a risky
environment (read: Four Easy Ways to Play Beta and Volatility with
ETFs).
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BARCLY-SLCT MLP (ATMP): ETF Research Reports
GLBL-X SPRDV US (DIV): ETF Research Reports
IPATH-SP MLP (IMLP): ETF Research Reports
E-TRC UBS AL NG (MLPG): ETF Research Reports
US-12M NATL GAS (UNL): ETF Research Reports
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