Bet on Low-Volatility ETFs Amid Iran War

U.S. stocks have been under pressure lately as investors reacted to surging oil prices and ongoing geopolitical tensions. Energy markets remain volatile as tensions escalate among the U.S., Israel and Iran.

Reports indicate that U.S. forces sank 16 Iranian vessels suspected of laying mines near the Strait of Hormuz, as quoted on Yahoo Finance. Meanwhile, tanker traffic in the region has been disrupted after attacks on two tankers in Iraq’s port loading area, prompting the closure of Iraqi ports.

President Donald Trump said Wednesday that the U.S. intends to “finish the job” soon, as mentioned in the same Yahoo Finance article. Oil prices jumped sharply. Both West Texas Intermediate crude and Brent crude climbed above $100 per barrel.

IEA Announces Record Oil Release

The rally came despite an announcement from the International Energy Agency that member nations would release roughly 400 million barrels of oil from strategic reserves — a record drawdown, as mentioned in the same Yahoo Finance article.

The attacks have raised broader concerns about shipping risks across the Gulf. Iraq was among the first major Persian Gulf producers to begin cutting output following the disruption, with Kuwait and Saudi Arabia soon following suit.

No wonder, Barclays iPath Series B S P 500 VIX Short Term Futures ETN Series B VXX has added 6.3% over the past week and has 12% over the past month.

Time for Low-Volatility ETFs?

Low-volatility ETFs hold stocks that historically fluctuate less than the broader market, helping cushion portfolios during periods of stock market turmoil. These ETFs typically tilt toward defensive sectors such as utilities, healthcare and consumer staples -- sectors that tend to remain stable even when economic uncertainty rises.

Against this backdrop, we highlight a few low-volatility ETFs that investors may consider now.

ETFs in Focus

iShares MSCI USA Min Vol Factor ETF USMV

The underlying MSCI USA Minimum Volatility (USD) Index is composed of U.S. equities that, in the aggregate, have lower volatility characteristics relative to the broader U.S. equity market. The fund charges 15 bps in fees and yields 1.46% annually.

Invesco S&P 500 Low Volatility ETF SPLV

The underlying S&P 500 Low Volatility Index consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months. The fund charges 25 bps in fees and yields 2.02% annually.

iShares MSCI EAFE Min Vol Factor ETF EFAV

The underlying MSCI EAFE Minimum Volatility (USD) Index measures the performance of international equity securities that have lower absolute volatility. The fund charges 20 bps in fees and yields 3.03% annually.

Franklin International Low Volatility High Dividend Index ETF LVHI

The underlying QS International Low Volatility High Dividend Hedged Index is composed of equity securities of developed markets outside the United States with relatively high yield and low price and earnings volatility while also mitigating currency fluctuations between the U.S. dollar and other international currencies. The fund charges 40 bps in fees and yields 4.64% annually.

iShares MSCI Global Min Vol Factor ETF ACWV

The underlying MSCI All Country World Minimum Volatility Index measures the combined performance of equity securities in both emerging and developed markets that have lower absolute volatility. The fund charges 20 bps in fees and yields 2.03% annually.

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iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX): ETF Research Reports

iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports

iShares MSCI EAFE Min Vol Factor ETF (EFAV): ETF Research Reports

Franklin International Low Volatility High Dividend Index ETF (LVHI): ETF Research Reports

Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports

iShares MSCI Global Min Vol Factor ETF (ACWV): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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