Many investors believe that markets slow down during the summer. This is often true in terms of trading volumes, but it does not mean that profits cannot still be made.
If you look monthly S&P 500 results over the past few decades, some of the weakest returns occur during the summer months (this helped inspire the “sell in May and leave” trope). Given the historical trend toward modest returns during this window and below-average trading volumes, that creates the potential for more significant swings in stock prices, should there be a catalyst to trigger them.
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How to think about the summer 2026 business season
We have seen it in the last two summers. Last year, the volatility created by the “Liberation Day” tariffs extended into early summer. In 2024, the reduction of the yen reverse carry trade caused the VIX to rise to 65 in August.
Now that the Federal Reserve may be forced to take a more hawkish stance due to high inflation and the Iran war showing little sign of ending, we may once again be entering an uncertain period for stock prices. US stocks have had a strong two months. Investors may want to consider positioning themselves a little more defensively, given the macroeconomic backdrop and how far stock prices have come.
Here are three exchange-traded funds (ETFs) to consider heading into the dog days of summer.
iShares MSCI USA Minimum Volatility Factor ETF
One of the easiest ways to maintain exposure to stocks while reducing risk is to invest in an ETF that focuses on limiting volatility. He iShares MSCI USA Minimum Volatility ETF(NYSEMKT:USMV) It does exactly this by creating a portfolio of stocks optimized to minimize overall volatility.
You can see the fund’s current top holdings, see NVIDIA and microsoft be in the top five and wonder how on earth they could be included in a volatility-focused fund. That is why it is key to understand the difference between “low volatility” and “minimal volatility.”
A low volatility ETF, such as Invesco S&P 500 Low Volatility ETF(NYSEMKT: SPLV)only includes stocks that demonstrate below-average share price volatility. A minimum volatility ETF seeks to create an overall portfolio with as few volatility characteristics as possible, but can use a broad universe of stocks to achieve this.
The iShares MSCI USA Maximum Volatility Factor ETF can include individual high- and low-volatility stocks, as long as the entire portfolio has demonstrably low volatility. This gives this fund the unique opportunity to limit equity risk but still participate in the upside potential of certain groups of stocks.
Vanguard High Dividend Yield ETF
Dividend ETFs may be in their sweet spot during periods when share price gains may be minimal. The income generated by these portfolios can create a significant advantage when it comes to total returns.
He Vanguard High Dividend Yield ETF(NYSEMKT:VYM) It is one of the most conservative ways to approach high performance. Their strategy is relatively bland and simple. You start with a broad universe of dividend-paying stocks and simply select the top half of the returns for inclusion. This produces a portfolio that is not necessarily the highest performing in this space. But its broad diversification (it owns more than 600 stocks) helps eliminate some of the downside risk that investors could expose themselves to if they seek higher returns.
SPDR Bloomberg 1-3 months T-Bill ETF
He SPDR Bloomberg 1-3 months T-Bill ETF(NYSEMKT:BIL) It is the purest “take all risks off the table” option. If you think a major stock market correction is imminent, higher yields for longer make bonds unattractive options, or you just want to lock in profits and stay on the sidelines for a while, Treasury bills aren’t the worst option in the world.
This ETF currently has a yield of 3.5%, which is competitive with most diversified equity products. Basically, you eliminate the risk of a stock price decline in case the Federal Reserve needs to raise rates or the market simply moves in that direction on its own. The income component makes it a legitimate option to capture some risk-free returns while waiting for some of the major economic and market risks to be reduced.
Defensive investing is not necessarily the most popular idea right now. But these three ETFs give you solid alternatives in case the current market rally starts to lose steam.
Should You Buy Shares of the Vanguard High Dividend Yield ETF Right Now?
Before buying shares in the Vanguard High Dividend Yield ETF, consider this:
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David Dierking has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Microsoft, Nvidia, and Vanguard High Dividend Yield ETFs. The Motley Fool has a disclosure policy.
Three ETFs Created for the Slower Summer Trading Season was originally published by The Motley Fool
