Low-volatility ETFs can be an ideal investment for investors who value consistency and risk management. Whether you’re nearing retirement or simply looking to reduce portfolio swings, this strategy can help you stay invested with greater confidence.
How to navigate market uncertainty with Canadian low volatility ETFs
If you’re investing in the markets, volatility is likely something you think about. But by adding certain companies to your portfolio, you can set yourself up to manage your investments and even promote a smoother ride over the long term. Low-volatility exchange-traded funds (ETFs) aim to do just that. They’re designed to find companies that are lower-risk than the broader market and that also show stable earnings. Over the long-term, the outcome is better risk-adjusted returns compared with the market across cycles, and less turbulence along the way.
What is low-volatility investing?
The low-volatility factor focuses on companies with more stable earnings and price behaviour. These companies are often less sensitive to economic shocks, making them better at handling downturns. While they may lag during strong bull markets, they tend to hold up better when markets decline quickly, helping investors stay the course.
The low-volatility factor targets stocks that show
- lower price volatility than the broader market
- stable earnings and fundamentals
- resilience during economic downturns
Volatility is commonly measured using historical price and earnings data, helping identify companies that offer a steadier ride through market cycles.
Why invest in Canadian low-volatility ETFs?
- Consistency over time: Investors often seek returns similar to the market, but with fewer ups and downs. Low-volatility strategies aim to deliver just that.
- Risk management: During market declines, low-volatility portfolios tend to experience smaller drawdowns, meaning your portfolio may have less to recover, and may recover faster, allowing for greater compounding over time.
- Fundamental strength: Companies with stable fundamentals are less likely to suffer declines during economic downturns.
What is Fidelity’s approach to low-volatility factor investing?
Fidelity’s low-volatility factor ETFs are built on tailor-made indexes designed to reflect the performance of stocks with lower risk than the broader market. These funds offer:
- single-factor exposure to low-volatility companies
- an outcome-oriented approach that seeks market-like returns with reduced volatility
- efficient portfolio integration as a complement to broader equity exposure
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