Get lower cuts from volatile markets with this low volatility fund
Markets have been rebounding this week, a sign that investors are still not sure how to proceed. Stocks closed lower on Thursday after rebounding (sort of) on Wednesday after seeing their biggest one-day drop in more than two years on Tuesday.
Much of this investor reluctance is due to market watchers waiting to see what the Federal Reserve will do next week on interest rates. The Fed has been aggressively raising interest rates to curb record high inflation. Some analysts believe the US central bank may roll back – or at least continue on its current path. But when the CPI released its latest figures, which showed inflation picking up in August, many feared that the Federal Reserve could raise interest rates by a full percentage point.
Many investors are unsure how to proceed until Federal Reserve Chairman Jerome Powell announces the decision.
In the meantime, markets are likely to continue to fluctuate. Therefore, investors looking to get less affected by volatile markets may want to consider American Century Low Volatility ETF (NYSE Arca: LVOL)which looks to track the market over the long term while offering lower volatility, especially in downturns.
Compared to the S&P 500 Index, LVOL is an actively managed fund that seeks to provide lower volatility than the market as a whole by examining asymmetric or negative volatility as well as investing in companies with strong and steady growth. Looking to reduce volatility at the portfolio level and individual securities. Portfolio managers seek to balance returns with managing risk by evaluating individual securities, their position, and their performance within their sector and overall.
Fund managers use quantitative models to select securities with attractive fundamentals that they expect will provide returns that will reasonably follow the market over the long term while seeking lower volatility.
When the fund was launched last year, Ed Rosenberg, head of ETFs at American Century, said LVOL offered “an intelligent approach that can adapt to quantitative insights and challenging market conditions.”
LVOL Portfolio Managers aim to deliver market returns in normal markets with less downside loss by correcting the shortcomings of low volatility indicators. “We are emphasizing strong fundamentals in an effort to reduce potential risks for speculative companies with questionable earnings,” Rosenberg added. “We are also expanding our risk measures beyond volatility to capture downside and other balance sheet risks with a focus on volatility at the portfolio level as well as the individual stock level.”
The expense ratio in LVOL is 0.29%.
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