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

Mutual Funds

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.


Please click here for an annotated chart of the iShares Edge MSCI Min Vol USA ETF

USMV, +0.26%.

It’s a low-volatility exchange traded fund. Here it’s compared with the SPDR S&P 500 ETF

SPY, +0.29%

which mirrors the S&P 500 Index

SPX, +0.29%


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

QQQ, +0.17%

which tracks the Nasdaq-100 ETF Index, and the Dow Jones Industrial Average

DJIA, +0.34%.

• 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

AAPL, +0.37%,


AMZN, +0.06%,


FB, +1.10%

and Google holding company Alphabet

GOOG, +0.13%

GOOGL, +0.10%

 are among the top holdings of the S&P 500 and the Nasdaq 100. The Dow’s top holdings include Boeing

BA, -0.51%,

UnitedHealth Group

UNH, +0.53%,

Home Depot

HD, +0.81%

and Goldman Sachs

GS, +0.56%.

• The largest holding of the low-volatility ETF is gold miner Newmont

NEM, +0.03%.

Other holdings of note are Visa

V, +0.51%,


KO, +0.13%,


MCD, +0.17%

and Verizon Communications

VZ, +0.08%.

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.


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.


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. Nigam Arora 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

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