Top-Rated Fund Offers Steady Income and Volatility Protection for Investors Seeking Stability

Think of investing like riding in a race car—exciting, but sometimes bumpy. Just as a roll cage keeps drivers safe, some investments help protect your money when markets get rough. Today, let’s talk about low volatility funds and why they matter for investors like you.

What Are Low Volatility Funds?

Low volatility funds are like the shock absorbers in your investment ride. They focus on stocks that don’t jump up and down in price as much as others. This means they can help smooth out the wild swings in your portfolio, especially when the market is acting unpredictable.

One example is the Franklin International Low Volatility High Dividend Index ETF (LVHI). This fund not only aims to keep your ride smoother but also pays out extra cash through dividends. LVHI has earned a five-star rating from Morningstar for its strong, steady performance over time.

Why Investors Care Right Now

When the market gets rocky—like it has this year—investors often look for safety. In 2024, while the S&P 500 dropped nearly 7%, LVHI was up about 8%, not even counting dividends. That’s a big difference! According to Morningstar, LVHI also has a 3.35% yield, which means you get paid while you wait for markets to recover.

Bull Case: The Upsides

• Steady Returns: These funds focus on companies with less price drama, which can help protect your investments in tough times.
• Income Boost: LVHI and similar funds pay dividends, giving investors regular income.
• Diversification: LVHI invests in stocks from around the world, not just the U.S., which can spread out risk.
• Defensive Sectors: Right now, funds like LVHI are heavier in energy, utilities, and consumer staples—areas that tend to hold up even when the economy slows down.
• Proven Track Record: Studies show that low volatility strategies have often outperformed during bear markets. For example, from 2008 to 2018, the S&P 500 Low Volatility Index beat the regular S&P 500 in down years (source).

Bear Case: The Downsides

• May Miss Big Gains: When the market is soaring, these funds might not rise as fast as riskier stocks.
• Sector Concentration: Too much focus on certain sectors (like utilities) could backfire if those areas struggle.
• International Risks: Investing outside the U.S. means dealing with other countries’ economies and rules, which can sometimes add risk.
• Fees: LVHI charges a 0.40% management fee, which is higher than some basic index funds.

How These Funds Work

LVHI starts by looking at about 3,000 big international companies. It picks those with high dividends and stable earnings. Then, it narrows down the list to those with the least price swings. The final group is about 150 to 200 stocks, mainly in steady sectors.

There’s also a U.S.-focused version, called Franklin U.S. Low Volatility High Dividend Index ETF (LVHD). It works the same way but only picks from American companies. LVHD has a similar yield and is also beating the broader market this year.

How to Use These Funds in Your Portfolio

Jeff Silverman from Franklin Templeton says these funds are like the roll cage in your portfolio. They can help balance out riskier investments, especially if you own a lot of tech or other “high-octane” stocks. Even when markets are calm, having some steady, low-volatility funds can help you sleep better at night.

Investor Takeaway

• Consider adding low volatility funds like LVHI or LVHD to your portfolio for more stability and steady income.
• Use them as a core holding to balance out riskier investments, not just during market downturns.
• Watch for sector concentration and make sure you’re not too heavy in one area, even with low volatility funds.
• Check fees and compare with other options to make sure you’re getting good value.
• Remember that no investment is risk-free, but adding a “roll cage” can help you weather the bumps in the market.

For the full original report, see CNBC