4 Low-Volatility Stock Funds

These exchange-traded funds and one mutual fund will soothe your nerves while sticking with stocks.

New exchange-traded funds may be just the ticket for jittery investors. These ETFs invest in stocks that shimmy the least. The one we like best is PowerShares S&P 500 Low Volatility Portfolio (symbol SPLV). Standard & Poor’s takes the 100 least-volatile stocks in the S&P 500 index over the previous 12 months, weights them by volatility (the less volatile a stock, the bigger its position in the specialized index) and rebalances the holdings quarterly. Note that S&P bases volatility on standard deviation, not beta.

The ETF charges just 0.25% a year and uses the simplest methodology. Since its May 2011 launch, it has garnered $1.7 billion in assets and is by far the most liquid and easily traded of the new class of ETFs. True to its low-volatility nature, its returns lagged early in 2012. Through April 5, the ETF gained 3.9%, compared with 11.8% for the S&P 500. Top holdings include utility Southern Company, Procter & Gamble and Coca-Cola.

Competing funds include the Russell 1000 Low Volatility ETF (LVOL) and iShares MSCI USA Minimum Volatility Index Fund (USMV). There are low-volatility ETF options for both developed and emerging markets as well.

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Some actively run mutual funds tend to gravitate toward low-volatility stocks. Our favorite is Vanguard Dividend Growth (VDIGX), a member of the Kiplinger 25. It also lagged the market early in 2012, with a year-to-date gain of 6.9%. But its long-term record is superb.

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Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.