Buy these 3 ETFs to guard against a fresh wave of geopolitical volatility, Morningstar says
NYSE
- Morningstar recommended a trio of ETFs for investors seeking protection against more volatility.
- Stocks surged after the US-Iran ceasefire, though the deal looks fragile.
- But investors taking a "wait-and-see" approach risk being sidelined when stocks turn higher, the firm said.
Markets remain volatile after the Iran war ceasefire, but investors have a few options as they hunt for safety from more violent swings, according to Morningstar.
The firm pointed to the latest big swing, with US stocks surging after the US announced a two-week ceasefire with Iran on Tuesday. The deal has calmed fears of the worst-case scenario stemming from the Iran war — that higher oil prices could stoke inflation while lowering growth — but a resolution to the war still hangs in the balance, with Iran accusing the US of violating the ceasefire agreement Wednesday evening.
Indeed, oil prices were hovering near $100 again on Thursday after logging their biggest one-day drop since 2020 on Wednesday.
Cash and bonds have traditionally been safe havens, but investors piling into those areas may be sacrificing long-term portfolio growth, Zachary Evens, a passive strategies analyst at the firm, wrote on Thursday.
"As we've seen in recent cycles, a wait-and-see approach can leave you sidelined just when markets roar back," Evens said.
The firm recommended three exchange-traded funds for traders to buy amid the latest market moves. Two of them could be held by investors long term, while the third protects investors from "unexpected inflation," Evens added.
Here are Morningstar's three investment ideas:
iShares MSCI USA Min Vol Factor ETF
Ticker: USMV
Morningstar rating: Silver
Year-to-date performance: +0.50%
Thesis: "Most low-volatility ETFs look at each stock independently, resulting in a portfolio of similar companies with shared risks. USMV plays defense at the portfolio level, looking for the optimal set of low-volatility companies based on how they interact with one another," Evens said.
"USMV won't keep up during market rallies, but its steady approach makes it a worthwhile ETF in any market environment," he added.
JPMorgan Hedged Equity Laddered Overlay ETF
Ticker: HELO
Morningstar rating: Bronze
Year-to-date performance: -1.99%
Thesis: The ETF combines stocks with options to "smooth market returns, using a strategy that limits investors' potential losses to around 5% over a 3-month period," Evens said.
"This ETF takes a very different approach than USMV, but it has similarly followed through on its defensive ambitions. Since its inception two and a half years ago, HELO has been 60% as volatile as the S&P 500 while capturing just 61% of the index's downside."
Vanguard Short-Term Inflation-Protected Securities ETF
Ticker: VTIP
Morningstar rating: Gold
Year-to-date performance: +1.11%
Thesis: Evens described the ETF as an "ultraconservative index bond" fund composed of inflation-protected securities, which helps protect investors against unexpected inflation spikes.
"Adding short-term TIPS to your portfolio, such as through VTIP, can help your returns keep up with inflation without adding much additional credit or interest rate risk. And should inflation storm back, VTIP could be just what the doctor ordered," Evens said.