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Sept. 28, 2019, 4:57 p.m. EDT

This broad-based ETF is outperforming the S&P 500 while guarding against declines

The iShares Edge MSCI Min Vol USA exchange traded fund has held up well during stock market weakness

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By Nigam Arora


Reuters

Global economic growth is slowing. The Organization for Economic Cooperation and Development (OECD) has cut its growth projection to 2.9% this year. Only four months ago, it was projecting 3.2% growth.

The new projection is the lowest in a decade. Still, this business cycle has been unusually long and therefore slower growth is to be expected. The important point is that investors who understand that will have many money-making opportunities. Let’s explore the issue with the help of a chart.

Chart

Please click here for an annotated chart of the iShares Edge MSCI Min Vol USA ETF /zigman2/quotes/203326574/composite USMV +0.06% . It’s a low-volatility exchange traded fund. Here it’s compared with the SPDR S&P 500 ETF /zigman2/quotes/209901640/composite SPY +0.21% which mirrors the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.16%  

Please note the following:

• The chart shows the low-volatility ETF has continued to outperform the S&P 500. In theory, the low-volatility ETF should underperform in a rising market.

• The reason for outperformance is two-fold. First, investors are concerned about the slowing economy and, second, lower interest rates.

• The chart shows the Arora buy signal for the market on Christmas Eve. In hindsight, Christmas Eve turned out to be the major bottom of this swing.

• The chart shows that the low-volatility ETF fell in the Arora buy zone, offering subscribers a great opportunity to buy it.

• The chart shows that during the market swoon in May, the low-volatility ETF barely budged, while the S&P 500 fell about 8%. This is the magic of low volatility. Similar conclusions can be drawn by comparing the low-volatility ETF to the Invesco QQQ Trust /zigman2/quotes/208575548/composite QQQ +0.29% which tracks the Nasdaq-100 ETF Index, and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA 0.00% .

• The chart shows that during the market weakness in late July and early August, once again the low-volatility ETF outperformed the S&P 500.

• Often low volatility is associated with utilities and consumer staples. However, this ETF holds many growth stocks. Of note is the difference in top holdings of the low-volatility ETF compared with SPY, QQQ and the Dow Jones Industrial Average. Apple /zigman2/quotes/202934861/composite AAPL -0.09% , Amazon /zigman2/quotes/210331248/composite AMZN +0.36% , Facebook /zigman2/quotes/205064656/composite FB +2.56% and Google holding company Alphabet /zigman2/quotes/205453964/composite GOOG -0.03%   /zigman2/quotes/202490156/composite GOOGL -0.08%  are among the top holdings of the S&P 500 and the Nasdaq 100. The Dow’s top holdings include Boeing /zigman2/quotes/208579720/composite BA -1.11% , UnitedHealth Group /zigman2/quotes/210453738/composite UNH +0.46% , Home Depot /zigman2/quotes/208081807/composite HD +0.57% and Goldman Sachs /zigman2/quotes/209237603/composite GS +0.63% .

• The largest holding of the low-volatility ETF is gold miner Newmont /zigman2/quotes/205356474/composite NEM +0.52% . Other holdings of note are Visa /zigman2/quotes/203660239/composite V +0.11% , Coca-Cola /zigman2/quotes/209159848/composite KO -0.25% , McDonald’s /zigman2/quotes/203508018/composite MCD +0.33% and Verizon Communications /zigman2/quotes/204980236/composite VZ -0.49% .

Read: How to profit from the ‘best of both worlds’ in stock investing

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Overbought

This ETF is technically overbought. An overbought ETF is vulnerable to a dip. If a trade deal is announced with China, there may be a selloff in this ETF. Such a selloff would likely be a buying opportunity.

Caution

In practice, it is important to diversify and not just hold one ETF. USMV has had an unusually strong move this year. In general, it is advisable to wait for a pullback in the Arora buy zone. Those who are under-invested or do not want to wait can start a scale-in on a shallow dip and accumulate more on a pullback.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. <INTERNAL-PAGE URL="/author/nigam-arora">Nigam Arora</INTERNAL-PAGE> is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

/zigman2/quotes/203326574/composite
US : U.S.: Cboe BZX
$ 63.42
+0.04 +0.06%
Volume: 3.21M
Nov. 12, 2019 4:10p
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/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 309.00
+0.65 +0.21%
Volume: 46.36M
Nov. 12, 2019 4:10p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,091.84
+4.83 +0.16%
Volume: 1.68B
Nov. 12, 2019 4:53p
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/zigman2/quotes/208575548/composite
US : U.S.: Nasdaq
$ 201.54
+0.58 +0.29%
Volume: 14.75M
Nov. 12, 2019 4:00p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,691.49
0.00 0.00%
Volume: 213.67M
Nov. 12, 2019 4:53p
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 261.96
-0.24 -0.09%
Volume: 21.83M
Nov. 12, 2019 4:00p
P/E Ratio
22.10
Dividend Yield
1.18%
Market Cap
$1165.03 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,778.00
+6.35 +0.36%
Volume: 2.04M
Nov. 12, 2019 4:00p
P/E Ratio
78.72
Dividend Yield
N/A
Market Cap
$878.38 billion
Rev. per Employee
$359,671
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 194.47
+4.86 +2.56%
Volume: 17.59M
Nov. 12, 2019 4:00p
P/E Ratio
31.06
Dividend Yield
N/A
Market Cap
$540.86 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,298.80
-0.39 -0.03%
Volume: 1.09M
Nov. 12, 2019 4:15p
P/E Ratio
27.87
Dividend Yield
N/A
Market Cap
$835.61 billion
Rev. per Employee
$1.39M
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/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,297.21
-1.07 -0.08%
Volume: 1.44M
Nov. 12, 2019 4:00p
P/E Ratio
27.84
Dividend Yield
N/A
Market Cap
$835.03 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/208579720/composite
US : U.S.: NYSE
$ 362.88
-4.08 -1.11%
Volume: 5.77M
Nov. 12, 2019 4:10p
P/E Ratio
55.65
Dividend Yield
2.27%
Market Cap
$206.52 billion
Rev. per Employee
$660,961
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/zigman2/quotes/210453738/composite
US : U.S.: NYSE
$ 255.25
+1.16 +0.46%
Volume: 1.89M
Nov. 12, 2019 4:10p
P/E Ratio
18.56
Dividend Yield
1.69%
Market Cap
$240.73 billion
Rev. per Employee
$754,157
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/zigman2/quotes/208081807/composite
US : U.S.: NYSE
$ 233.12
+1.32 +0.57%
Volume: 2.99M
Nov. 12, 2019 4:10p
P/E Ratio
23.22
Dividend Yield
2.33%
Market Cap
$253.86 billion
Rev. per Employee
$261,993
loading...
/zigman2/quotes/209237603/composite
US : U.S.: NYSE
$ 220.41
+1.38 +0.63%
Volume: 1.89M
Nov. 12, 2019 4:10p
P/E Ratio
9.86
Dividend Yield
2.27%
Market Cap
$77.56 billion
Rev. per Employee
$1.34M
loading...
/zigman2/quotes/205356474/composite
US : U.S.: NYSE
$ 36.90
+0.19 +0.52%
Volume: 4.52M
Nov. 12, 2019 4:10p
P/E Ratio
13.26
Dividend Yield
1.52%
Market Cap
$30.10 billion
Rev. per Employee
$300,083
loading...
/zigman2/quotes/203660239/composite
US : U.S.: NYSE
$ 179.74
+0.20 +0.11%
Volume: 6.12M
Nov. 12, 2019 4:10p
P/E Ratio
34.72
Dividend Yield
0.67%
Market Cap
$389.65 billion
Rev. per Employee
$1.25M
loading...
/zigman2/quotes/209159848/composite
US : U.S.: NYSE
$ 51.71
-0.13 -0.25%
Volume: 12.66M
Nov. 12, 2019 4:10p
P/E Ratio
28.80
Dividend Yield
3.09%
Market Cap
$222.11 billion
Rev. per Employee
$506,342
loading...
/zigman2/quotes/203508018/composite
US : U.S.: NYSE
$ 193.28
+0.64 +0.33%
Volume: 2.93M
Nov. 12, 2019 4:10p
P/E Ratio
25.38
Dividend Yield
2.59%
Market Cap
$145.08 billion
Rev. per Employee
$100,120
loading...
/zigman2/quotes/204980236/composite
US : U.S.: NYSE
$ 59.32
-0.29 -0.49%
Volume: 7.71M
Nov. 12, 2019 4:10p
P/E Ratio
15.24
Dividend Yield
4.15%
Market Cap
$246.53 billion
Rev. per Employee
$905,626
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Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and the founder of two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is that most money is made by predicting change before the crowd. Arora is the chief investment officer at The Arora Report and the editor of four newsletters that track the ZYX Change Method. Nigam can be reached at Nigam@TheAroraReport.com

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