Two of our current recommended positions, both exchange-traded funds, qualify as very low risk investments, notes J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.
iShares MSCI USA Minimum Volatility Index ETF (USMV) seeks investment results that correspond to the price and yield performance of the MSCI USA Minimum Volatility Index.
The ETF invests at least 90% of its assets in securities of the Index or in depositary receipts representing securities in the Index.
USMV is currently selling at a very small 0.14% discount to its net asset value. The price to earnings ratio (P/E) of the stocks contained in the ETF is 25.0, and the price to book value ratio (P/BV) is 5.41.
Both ratios are a little high, but beta, which is a measure of volatility, is a low 0.78. Management fees total 0.15%.
USMV is very well-diversified, with risk spread out over 134 holdings. The largest position consumes only 1.65% of the total portfolio.
The ten largest holdings in order of size are: TJX, Paychex, ADP, General Mills, Johnson & Johnson, PepsiCo, Bristol-Myers, Lockheed Martin, Chubb, and Eli Lilly.
The five largest sectors are: HealthCare, Financials, Consumer Staples, Information Technology, and Consumer Discretionary.
A recent report by Morningstar concluded: “in nearly every market studied, low-volatility stocks have outperformed high-volatility stocks.” USMV is a great addition to everyone's portfolio. I expect USMV shares to reach my Min Sell Price of 47.00 within two years.
Meanwhile, the SPDR S&P Dividend ETF (SDY) holds all the companies in the S&P 1500 Index that have raised their dividends every year for the past 20 years.
The objective of SDY is to include companies that have increased their dividends consistently. Only 85 qualify out of 1,500 companies!
Companies with pristine dividend records tend to produce solid earnings and sustainable business models. Also, management is less likely to engage in reckless capital spending if one of the goals of management is to protect and grow the company's dividend.
SDY is currently selling at a very small 0.02% discount to its net asset value. The P/E ratio of the stocks contained in the ETF, based on current EPS, is 19.1, and the P/BV ratio is 2.74. Both ratios are reasonable, and the beta is below average at 0.77. Management fees total 0.35%.
SDY is quite well diversified with risk spread out over 85 holdings. The largest position is only 2.70% of the total portfolio.
The ten largest holdings in order of size are AT&T, HCP, Consolidated Edison, Abbvie, National Retail Properties, Nucor, Clorox, Chevron, Air Products, and Emerson Electric.
The five largest sectors are: Consumer Staples, Industrials, Consumer Discretionary, Financials, and Utilities.
SDY is a great substitution for bonds because of its 2.8% yield and steady performance. I expect SDY to reach my Min Sell Price of 103.00 within two years.
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