3 ETFs for Uncertain Markets

Daniel Sotiroff: Global markets have faced a wide range of risks over the past three years. But uncertainty has been and always will be a big part of markets. With that in mind, all three of the ETFs for today can be used to reduce risk as a long-term component of a portfolio. Each is among the best in its respective category and should hold up well over the long run.

3 ETFs for Uncertain Markets

1. iShares MSCI USA Min Vol Factor ETF USMV
2. iShares U.S. Treasury Bond ETF GOVT
3. Pimco Enhanced Short Maturity Active ETF MINT

The first ETF I have for today provides a less risky way to invest in U.S. stocks. Silver-rated iShares MSCI USA Min Vol Factor ETF, ticker USMV, is among the best low-risk U.S. stock ETFs available. This ETF builds its portfolio from the least risky stocks in the market. It also accounts for any diversification benefits across the stocks it holds as a way to further cut back on volatility.

But USMV doesn’t stop there. It tries to minimize the presence of other risk factors in its portfolio, such as value and momentum, while keeping sector weights close to the broader U.S. market. So far, it has provided a reliable cushion during down markets, with its historical volatility coming in about 20% lower than the Russell 1000 Index.

USMV comes with another trade-off. You’ll likely see this ETF underperform when the market turns out strong gains, as it did in the second half of 2020 and early 2021. A reasonable expectation for this ETF is marketlike returns, with about 15% to 20% less volatility over a full market cycle.

The second ETF for today also comes from iShares. Silver-rated iShares U.S. Treasury Bond ETF, which trades under the ticker GOVT. It’s a less risky alternative to those that track the Bloomberg U.S. Aggregate Bond Index, such as Vanguard Total Bond Market ETF BND. It’s a great core bond ETF for anyone that wants to diversify across bonds of different maturities but prefers to reduce or eliminate credit risk.

GOVT and BND tend to have similar performance when interest rates rise or fall, as judged by their average effective duration. But GOVT differs from BND in one key regard: It sticks to Treasury bonds, so corporate bonds, mortgage-backed securities, or other fixed-income assets are off the table. That means its portfolio bears almost no credit risk, and it should hold up better than BND when market volatility picks up and credit spreads widen.

The third and final ETF for today is actively managed and the least risky of the three: Gold-rated Pimco Enhanced Short Maturity Active ETF, which trades under the ticker MINT and is one of our top picks in the ultrashort bond category. This ETF is built around investment-grade fixed-income assets that mature in one year or less.

Compared to GOVT, MINT is considerably less sensitive to changes in interest rates. Treasury bills are part of its portfolio, but it also holds investment-grade debt to improve its rate of return. Overall, it could be used as a cash substitute for investors that are trying to preserve wealth.

Watch “3 Inflation-Fighting ETFs” for more from Daniel Sotiroff.