As geopolitical tensions rise in the Middle East and Eurasia, the CBOE Volatility Index (VIX) has experienced a significant uptick and the S&P 500 Index is well off its mid-July highs. Thankfully, a range of investment options exist to mitigate such volatility, including two newly converted active ETFs from San Francisco-based FundX.
In this article, we will take a closer look at these new funds, why you might want to consider them for your portfolio and alternatives to consider.
FundX Flexible Fund (XFLX)
The FundX Flexible ETF (XFLX) – formerly the FundX Flexible Income Fund (INCMX) – offers a flexible approach to fixed income investing. While holding a full portfolio of bond and total-return ETFs, the managers actively adapt to changing bond market conditions, including changing interest rates, providing a buffer against stock market volatility.
The fund is an ideal choice for investors who want a dynamic and flexible approach to fixed income with a solid track record of adapting to changing markets, as well as those who seek to participate in bond market trends with the convenience of owning just one fund.
As of September 30, 2023, the fund has outperformed the Bloomberg Aggregate Bond Index with an average annualized return of 1.18% over one year and 1.49% over ten years compared to 0.64% and 1.13% for the benchmark index, respectively.
The fund’s largest holdings include:
- iShares Broad USD Investment Grade Corporate Bond ETF (USIG) – 21.37%
- Janus Henderson AAA CLO ETF (JAAA) – 17.78%
- SPDR Portfolio High Yield Bond ETF (SPHY) – 11.63%
- SPDR Bloomberg High Yield Bond ETF (JNK) – 10.74%
- First Trust Senior Loan Fund (FTSL) – 10.34%
- Global X S&P 500 Covered Call ETF (XYLD) – 10.15%
Unlike many conventional fixed income funds, the FundX Flexible ETF holds more than a fifth of its assets in high-yield bonds and incorporates fixed income-like equity strategies, such as covered calls, helping to boost yield and diversify exposure to interest rates. But, that said, the active management comes at a price with the fund’s lofty 1.57% net expense ratio.
FundX Conservative ETF (XRLX)
The FundX Conservative ETF (XRLX) – formerly the FundX Conservative Upgrader Fund (RELAX) – aims to provide an all-in-one portfolio of core stock and bond ETFs. Rather than holding primarily fixed income, this fund holds a portfolio of ~50% conservative equities and 50% somewhat unconventional fixed income investments.
While the fund’s total returns underperform its benchmarks, its focus on mitigating risk could lead to higher risk-adjusted returns. In particular, the fund holds a combination of high-yield bond funds and large- to mega-cap equity funds.
The fund’s largest holdings include:
- iShares Broad USD Investment Grade Corporate Bond ETF (USIG) – 9.91%
- Janus Henderson AAA CLO ETF (JAAA) – 8.34%
- Vanguard Growth Index Fund ETF (VUG) – 6.16%
- iShares Russell Top 200 Growth Index Fund (IWY) – 6.16%
- Vanguard Mega Cap Growth Index Fund (MGK) – 6.12%
- Schwab US Large-Cap Growth ETF (SCHG) – 6.09%
- iShares MSCI USA Quality Factor ETF (QUAL) – 6.07%
Like the previous fund, the FundX Conservative ETF has a relatively high expense ratio by ETF standards at 2.02%, making it pricier than many comparable funds. But the actively-managed slant helps ensure that asset allocations remain optimized over time and the unique focus on actively lowering volatility sets it apart from many other options.
Alternatives to Consider
FundX isn’t the only asset manager offering ETFs designed to lower volatility. iShares, Invesco, JPMorgan and other asset managers offer a wide array of options to help navigate turbulent markets and potentially limit losses.
Low Volatility ETFs
These funds are selected based on YTD total return, which range from -7% to 12%. Their expense ratios are between 0.15% and 0.4% and their AUM is between $520M and $28B. They are currently yielding between 1.4% and 5.1%.
| Name | Ticker | Security Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield (%) | Expense |
|---|---|---|---|---|---|---|---|
| Franklin U.S. Large Cap Multifactor Index ETF | FLQL | ETF | No | $940M | 12% | 1.4% | 0.15% |
| Franklin International Low Volatility High Dividend Index ETF | LVHI | ETF | No | $528M | 10% | 4.7% | 0.40% |
| Fidelity Low Volatility Factor ETF | FDLO | ETF | No | $554M | 7.7% | 1.5% | 0.29% |
| Goldman Sachs ActiveBeta® World Low Vol Plus Equity ETF | GLOV | ETF | No | $731M | 5.2% | 1.6% | 0.25% |
| JPMorgan Ultra-Short INcome ETF | JPST | ETF | No | $23B | 4% | 5.1% | 0.18% |
| iShares MSCI USA Min Vol Factor ETF | USMV | ETF | No | $27.9B | 1.63% | 2.1% | 0.15% |
| iShares MSCI Global Min Vol Factor ETF | ACWV | ETF | No | $4.4B | 1.1% | 1.8% | 0.2% |
| Invesco S&P 500 Low Volatility ETF | SPLV | ETF | No | $8.1B | -6.8% | 2.8% | 0.25% |
When choosing between these options, it is critical to look beyond total return and assess risk and expense. While actively-managed funds may be more expensive, they may offer improved risk-adjusted returns and better handle market downturns. On the other hand, passively-managed funds tend to have lower costs and match market returns in more normal conditions.
The Bottom Line
Rising geopolitical tensions are introducing more volatility into the market. Fortunately, several ETFs can help reduce portfolio volatility and navigate turbulent markets – including two newly converted funds from FundX. While they aren’t the only option for investors looking to mitigate risk, they take a unique approach to the market and may be a great fit for your portfolio.