Three Low-Volatility ETFs for Your Portfolio
Monday, August 2nd, 2010Michael Johnston submits:
Traditionally, investors have sought to smooth out the volatility of equity portfolios through the addition of fixed income securities. But in the current liquidity-fueled environment, the relationship between stocks and bonds has strengthened considerably. Since the beginning to 2009, the correlation between the S&P 500 SPDR (SPY) and the broad-based Barclays Capital Aggregate Bond Fund (AGG) is close to 0.90, a figure sure to astound many investors.
As far as adding diversification benefits, commodities aren’t much better–at least they haven’t been recently. Many investors view natural resources as a potential diversifying agent when added to traditional stock-and-bond portfolios. But since the collapse of Lehman Brothers, the correlations between stocks and commodities has strengthened considerably. As prospects for the global economy dim, so too does demand for raw materials. The PowerShares DB Commodity Fund (DBC) is one of the most broad-based products available, investing in futures contracts of more than a dozen natural resources. That fund has exhibited a correlation of more than 0.80 with SPY since the beginning of 2009, indicating that commodities have been disappointing investors who had expected exposure to a non-correlated asset.
