Prepare for the likelihood of a recession with LVOL

October is shaping up to be a solid month for the markets. Although down on Monday, the Dow Jones Industrial Average is on track for its best month since 1976. And while some investors believe the rally is a sign the Federal Reserve will stick to a soft landing , Sandra Testani, vice president of ETF products and strategy for American Century Investments, said markets are more likely to experience a bearish rally and that “we have a 60% chance that we are in or out of recession.”

“Although last month was strong, we continue to see that a recession is likely in the United States and Europe,” Testani said.

But that’s not all. Testani added that there is also a “strong chance of stagflation going forward.” So American Century has tried to help its clients prepare for a prolonged bear market — rather than assuming we’re off the hook after the S&P’s strong showing in October — and build their long-term portfolios accordingly. .

To prepare for the likelihood of a recession, investors may consider American Century Low Volatility ETF (NYSE Arca: LVOL), which seeks to track the market over the long term while offering less volatility, especially during downturns. Benchmarked against the S&P 500, LVOL is an actively managed fund that seeks to provide lower volatility than the overall market by filtering out asymmetric or downside volatility and investing in companies with strong and steady growth.

The fund seeks to reduce volatility at the level of the portfolio and its individual securities. Portfolio managers seek to balance returns with risk management by evaluating individual securities and their place and performance within their sector and overall.

ETF managers use quantitative models to select stocks with attractive fundamentals that they believe will provide returns that reasonably track the market over the long term while seeking less volatility.

When the fund launched last year, Ed Rosenberg, head of ETFs at American Century, said LVOL enables “an agile approach that can adapt to quantitative information and challenging market conditions.”

LVOL’s portfolio managers aim to deliver market returns in normal markets while losing less in downturns by correcting the shortcomings of low volatility indices. “We emphasize strong fundamentals to limit potential risk from speculative companies with questionable earnings,” Rosenberg added. “We are also expanding risk metrics beyond volatility to capture other downside and balance sheet risks while focusing on volatility at the portfolio level as well as at the individual stock level.”

LVOL has an expense ratio of 0.29%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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