Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

2 ETFs To Navigate Earnings Season’s Heightened Volatility

By Investing.com (Tezcan Gecgil/Investing.com )ETFsJul 13, 2021 09:59
uk.investing.com/analysis/2-etfs-to-navigate-earnings-seasons-heightened-volatility-200486220
2 ETFs To Navigate Earnings Season’s Heightened Volatility
By Investing.com (Tezcan Gecgil/Investing.com )   |  Jul 13, 2021 09:59
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

July means a new earnings season, and possibly more stock market volatility as companies report their Q2 figures and outlook for the rest of the year. A number of widely-followed companies are reporting this week, including JPMorgan Chase (NYSE:JPM) and PepsiCo (NASDAQ:PEP) today, Citigroup (NYSE:C) and Delta Air Lines (NYSE:DAL) on Wednesday, and Taiwan Semiconductor Manufacturing (NYSE:TSM) on Thursday.

As a result, the CBOE Volatility Index could also see spikes. Many regard this leading benchmark for U.S. stock market volatility as a useful tool to appreciate the sentiment in broader U.S. equity markets.

Traders also refer to the VIX as the "fear index,” since the index usually escalates rapidly when the S&P 500 drops sharply. An index like the VIX tends to be highly mean-reverting, which means given the recent record highs we have seen in broader equity markets, many might be tempted to look for a bottom in the VIX.

VIX Weekly
VIX Weekly

It is not possible to foretell how investors could react to the upcoming quarterly numbers that will be posted by some of the darlings of Wall Street. Therefore, today we discuss two exchange-traded funds (ETFs) that could help diversify portfolios in times of heightened volatility.

1. Fidelity Low Volatility Factor ETF

Current Price: $48.36
52-Week Range: $36.43 - $48.37
Dividend Yield: 1.17%
Expense Ratio: 0.29% per year

The Fidelity® Low Volatility Factor ETF (NYSE:FDLO) provides access to large- and mid-capitalization U.S. businesses with lower volatility than the broader market.

FDLO Weekly
FDLO Weekly

The overall beta of the fund in the last 12 months has been 0.88. This metric shows the volatility of returns relative to the entire market. In simple terms, if a security has a beta below 1, it is less volatile than the overall market. On the other hand, a stock or fund with a higher beta has higher risk and also greater expected returns.

FDLO, which has 129 stocks, tracks the returns of the Fidelity U.S. Low Volatility Factor Index. Since the fund’s inception in September 2016, assets under management have grown to $473 million.

Stocks in the information technology sector have the largest slice, with 27.82%. Next in line are health care (13.87%), consumer discretionaries (12.76%), communication services (10.54%) and financials (10.39%).

Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), Visa (NYSE:V), Amazon (NASDAQ:AMZN), Johnson & Johnson (NYSE:JNJ) and UnitedHealth Group (NYSE:UNH) are among the leading names in the roster. About 29% of assets are in the top 10 stocks.

In recent years, many of these stocks have been favorites of most long-term portfolios. Their quarterly metrics could potentially bring short-term declines in their share prices. Nonetheless, these businesses are likely to see many more quarters of sales growth and an increased return on equity.

The ETF is up more than 30% in the past year and 14% year-to-date. The fund saw a record high in recent days. Trailing P/E and P/B ratios stand at 28.37 and 5.53, respectively. In the case of a potential decline, long-term investors could find better value around $45.

2. iPath S&P 500 VIX Short-Term Futures ETN

Current Price: $29.24
52-Week Range:
$28.07 - $144.04
Expense Ratio:
0.89% per year

Our next choice is an exchange-traded note (ETN), a topic we covered previously in detail. The iPath® Series B S&P 500® VIX Short-Term Futures™ ETN (NYSE:VXX) is an unsecured debt obligation issued by Barclays (NYSE:BCS).

VXX Weekly
VXX Weekly

VXX provides exposure to the S&P 500 Vix Short Term Futures ER, which follows the value of the near-term futures contracts written on VIX.

Thus, the objective of VXX is to achieve a daily return that exactly matches the daily change in short-term futures contracts tracking the VIX. This ETN typically has a high correlation with the spot price of the VIX index.

Therefore, VXX may enable bearish investors to hedge their portfolios against a market decline in the short run. In other words, the ETN could rally during the earnings season on the back of a potential weakness in equities.

Nonetheless, VXX is usually not suitable for long-term portfolios. Like other volatility exchange-traded products, this ETN is designed with daily returns in mind.

Put another way, if VXX is held for more than one trading session, both the positive and negative returns may easily be compounded. As the holding period increases, VXX traders tend to lose money due to moves in prices of futures. As a result, it is more appropriate for experienced traders who want a volatility product for a short-term bet.

2 ETFs To Navigate Earnings Season’s Heightened Volatility
 

Related Articles

2 ETFs To Navigate Earnings Season’s Heightened Volatility

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
som sithy
som sithy Jul 13, 2021 10:20
Saved. See Saved Items.
This comment has already been saved in your Saved Items
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email