A Place for Stock Investors to Hide From Falling Marketsby
Stay invested and sleep at night.
Recent gyrations in the stock market have pushed the Chicago Board Options Exchange Volatility Index (VIX) to its highest level since last March. In the first six trading days of October alone, the Dow Jones Industrial Average (INDU) has risen or fallen by at least 200 points four times.
Even the level-headed Gina Martin Adams, senior strategist at Wells Fargo Securities LLC, admitted to us this morning on Surveillance the volatility has proven stressful.
So today, we highlight the iShares MSCI USA Minimum Volatility exchange-traded fund (USMV). It holds 150 large cap companies like PepsiCo, Inc. (PEP) and Merck & Co. Inc. (MRK), whose prices generally move less than than market. Additionally, the fund features a very low expense ratio of 0.15 percent and pays a dividend of 1.8 percent.
The fund's beta of 0.79 implies a move of $0.79 for every $1.00 move in the broader market. This lower volatility compares favorably to the three primary U.S. stock indicies: the S&P 500 Index, the NASDAQ Composite Index and the Russell 2000 Index.
Most notably, USMW has also posted a higher return this year than the three indices. In other words, it's less volatile and outperforming. Or, put another way: It allows us to stay invested and to sleep at night.