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3 Low-Volatility Funds in the Zone

Low-volatility funds are an unsung success story of 2022.

It seems like everything is deeply in the red this year, but there has been one bright spot. Low-volatility funds have exceeded expectations with excellent returns. Many have losses below 5%, and some are even in the black. Nearly every one is in their category’s top quartile for 2022.

These funds are labeled low volatility, minimum volatility, or managed volatility. And each one tries to be less volatile than its benchmark and generally lose less in downturns. It hasn’t worked as well in other environments, but in this one it’s been great. 

Vanguard’s strategy is to select less volatile stocks but maintain sector and country weights in line with its benchmark so that performance can’t stray too far from the benchmark. In addition, the fund hedges all of its currency risk in order to steady performance. 

Franklin is an ETF following the QS Low Volatility High Dividend Index. The index screens for stocks with attractive yields, healthy earnings, and low volatility in both stock price and earnings. Then an optimizer adjusts the portfolio for higher yields with lower risk. We rate the fund Silver.

Invesco S&P SmallCap Low Volatility ETF selects the 120 least volatile stocks, and it weights them by using the inverse of their volatility. Unlike the Vanguard, it doesn’t constrain sector bets, so it can have some pretty big sector bets. As a result, we rate it just Neutral.