This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Steady Funds for Rough Markets

When bull markets arrive, however, investors favor high-volatility stocks in sectors such as technology and industrials. Those companies often report earnings surges in better economic times. In comparison, utilities and staples businesses seem like stodgy performers with slow growth.

Following the financial crisis, low-volatility stocks recorded unusually strong performance. Nervous investors flocked to utilities and other dividend-paying blue chips. That pushed price-earnings ratios up to unusually high levels.

In recent months, low-volatility stocks suffered particularly poor relative performance as investors gained confidence and shifted away from expensive dividend stocks. Rising interest rates encouraged the move from utilities and dividend stocks.

For income-oriented investors, dividend stocks seem less appealing as bonds offer more competitive yields. If the economic recovery stays on track and interest rates keep rising, the low-volatility funds could continue to lag.

The low-volatility ETFs use a variety of approaches to select their stocks. PowerShares S&P 500 Low Volatility picks the 100 stocks in the S&P benchmark that recorded the lowest volatility in the past 12 months, as indicated by a measure known as standard deviation. Current holdings include such stable blue chips as cereal giant Kellogg (K) and power producer Consolidated Edison (ED).

While such blue chips can hold their value in downturns, the fund presents risks because it is highly concentrated. The portfolio has 29.8% of assets in utilities and nothing in technology.

SPDR Russell 1000 Low Volatility spreads its bets a bit more. The SPDR portfolio has 14.9% of assets in utilities and 3.9% in technology. If interest rates spike, the SPDR fund would likely fare better than its PowerShares competitor would.

At the time of publication, the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,982.59 +22.02 0.13%
S&P 500 1,978.91 +0.57 0.03%
NASDAQ 4,444.9090 -4.6550 -0.10%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs