Exchange Traded Funds (ETFs)

Seek Low Volatility with This Fund

The Fidelity Low Volatility Factor ETF (FDLO) seeks to provide investment returns that correspond to an index that is designed to reflect the performance of large- and mid-capitalization U.S. stocks with lower volatility than the broader market.

FDLO hunts from the 1,000 largest U.S. stocks for those with low volatility in returns and earnings. The fund uses a scoring system, based on three metrics: low volatility of returns, low earnings volatility and low beta (a measure of volatility compared to the market). FDLO has $53.94 million in total assets in its holdings, which are rebalanced twice annually.

So far, 2018 has been a year of high volatility. As a result, low volatility ETFs are among the most popular “smart beta,” or factor-based, funds on the market. One of the cornerstones of factor investing is the low-volatility factor.

Factor investing is a strategy in which securities are chosen to achieve heightened returns. Two main types of factors, macroeconomic and style, can spur returns of stocks and bonds. Macroeconomic factors, such as credit, inflation and liquidity, are aimed at capturing broad risks across asset classes, while style factors, such as value and momentum, explain returns and risks within asset classes.

According to Zacks Research, the conventional wisdom of “higher risk, higher returns” does not always hold true in all cases. Low-volatility funds are designed to take advantage of this phenomenon and deliver higher risk-adjusted returns. Investors should not use low-volatility funds to hedge against sudden market breaks.

Over the last year, FDLO returned 15%. Year to date, FDLO has returned 2.18%. FDLO has an expense ratio of 0.29% and a distribution yield of 1.64%.

FDLO’s top five holdings are Apple (AAPL), 4.44%; Microsoft (MSFT), 3.59%; Alphabet (GOOGL), 3.07%; Berkshire Hathaway (BRK.B), 2.10%; and Johnson & Johnson (JNJ). In addition, FDLO is 25% invested in information technology, 15% in financials, 13% in health care, 12% in consumer discretionary and 10% in industrials.

For investors seeking a fund with low volatility, the Fidelity Low Volatility Factor ETF (FDLO) could be a good choice.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.