2 ETFs To Protect Your Portfolio From Earnings Season Volatility
Tezcan Gecgil/Investing.com | Jul 19, 2022 10:34
- Inflation worries continue to weigh on equity markets
- Earnings season will likely increase volatility
- ETFs offer investors ability to diversify
- Current Price: $48.17
- 52-week range: $47.50 - $52.51
- Expense ratio: 1.36% per year
- Current Price: $62.91
- 52-week range: $60.90 - $79.65
- Dividend yield: 3.02%
- Expense ratio: 0.20% per year
Earnings season has started with mixed quarterly reports, fueling more price swings in an already highly volatile year for equities. All against a backdrop of a 41-year-high in the Consumer Price Index and intensifying worries about the Fed's next rate hike.
The fear-gauge or the CBOE Volatility Index is up almost 47% since January at around 25.30.
In such a macroeconomic environment, many investors turn to exchange-traded funds (ETFs) to weather the storm. In the first half of 2022, US-listed ETFs saw net inflows of In addition :
"Equity funds led the industry in June, taking in $34 billion—92% of all flows. US equity ETFs led within equities, taking in $24 billion."
Despite the sell-off on Wall Street, investors are willing to put their capital into ETFs. Financial services firm Brown Brothers Harriman the wide range of asset classes and tactical strategies offered by ETFs make them increasingly popular in times of increased volatility.
Today, we discuss two ETFs to consider during the choppy days ahead of this earnings season.
h2 1. First Trust Long/Short Equity ETF/h2
Get The App
Actively managed ETFs—in which fund managers make frequent trades to adapt portfolios to changing market conditions—have been gaining popularity amid this year's market rout. For instance, according to , over a third of professional investors who responded could consider allocating more capital to actively managed funds.
First on today's list is the First Trust Long/Short Equity ETF (NYSE:FTLS), an actively managed fund. It invests in long and short positions consisting of US-listed stocks of domestic and foreign companies and equity index futures contracts. In other words, it simultaneously bets on and against stocks to generate an above-average long-term total return.
FTLS started trading in September 2014, and net assets stand at $484.9 million. Currently, the ETF has both long and short exposure in all 11 sectors in the S&P 500 index. The net exposure is over 55%.
The fund's top long positions currently include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Vertex Pharmaceuticals (NASDAQ:VRTX) and Walmart (NYSE:WMT).
Conversely, some of the leading short positions are in Fidelity National Information Services (NYSE:FIS); Verizon Communications (NYSE:VZ) ; and General Electric (NYSE:GE).
So far, in 2022, FTLS has declined around 7.6%. In comparison, the S&P 500 has dropped 19.6%.
However, it is also worth noting that the fund is one of the most expensive actively managed ETFs, with a total annual fee of 1.36%, including management fees, margin interest expense, and short sale fees. Nevertheless, we believe FTLS deserves further due diligence.
h2 2. iShares MSCI EAFE Min Vol Factor ETF/h2Low or minimum volatility ETFs allow investors to build defensiveness into portfolios and hedge against significant drawdowns. Due to the growing possibility of a US recession, many investors may consider global equities during the US earnings season.
Next up on our list is the iShares MSCI EAFE Min Vol Factor ETF (NYSE:EFAV). It invests in shares of international companies with lower volatility characteristics. The fund was first listed in October 2011.
EFAV, which tracks the MSCI EAFE Minimum Volatility Index, currently has 234 stocks. Health care names have the largest slice, with 18.9%. Then come consumer staples (15.7%), industrials (13.2%), and financials (12.6%).
Geographical allocations include Japan (27.4%), Switzerland (15.1%), the United Kingdom (10.6%), Hong Kong (7.9%), and France (6.1%). Meanwhile, the top 10 holdings account for 14% of $5.7 billion in net assets.
Leading names include the Switzerland-based health care heavyweights Nestle (OTC:NSRGY), Roche (OTC:RHHBY), and Novartis (NYSE:NVS) as well as telephone operator Swisscom (OTC:SCMWY). Next are the Danish diabetes care specialist Novo Nordisk (NYSE:NVO) (CSE:NOVOb) and the UK-based utility name National Grid (LON:NG).
EFAV has dropped roughly 18% since January and hit a 52-week low on June 14. Meanwhile, the current price supports a dividend yield of over 3%.
The fund's trailing price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 16.87x and 1.92x, respectively. Readers looking to add ex-US low-volatility exposure to their portfolios could consider researching the fund further.
Disclaimer: On the date of publication, Tezcan Gecgil, Ph.D., did not have any positions in the securities mentioned in this article.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.