A lot of investors think that the markets slow down during the summer. That’s often true in terms of trading volumes, but it doesn’t mean that there aren’t gains still to be had.
If you look at monthly S&P 500 results over the past several decades, some of the weaker returns do happen during the summer months (this helped inspire the “sell in May and go away” 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 share prices, should there be a catalyst to ignite them.
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How to think about the 2026 summer trading season
We’ve seen that over the past two summers. Last year, the volatility created by the “Liberation Day” tariffs carried into the earlier part of summer. In 2024, the reverse yen carry trade unwind caused the VIX to spike as high as 65 in August.
With the Fed potentially now being forced to take a more hawkish stance due to high inflation and the Iran war showing little sign of ending, it’s possible we could again be entering an uncertain period for equity prices. U.S. stocks have had a strong two months. Investors may want to consider positioning themselves a little more defensively, given the macro backdrop and how far equity prices have come already.
Here then are three exchange-traded funds (ETFs) to consider as we head into the dog days of summer.
iShares MSCI USA Minimum Volatility Factor ETF
One of the easiest ways to maintain equity exposure while dialing back risk is by investing in an ETF that focuses on limiting volatility. The iShares MSCI USA Minimum Volatility ETF(NYSEMKT: USMV) does exactly this by creating a portfolio of stocks optimized to minimize overall volatility.
You may look at the fund’s current top holdings, see Nvidia and Microsoft sitting in the top five, and wonder how in the world these would be included in a volatility-focused fund. So it’s key to understand the difference between “low volatility” and “minimum volatility.”
A low-volatility ETF, such as the Invesco S&P 500 Low Volatility ETF(NYSEMKT: SPLV), only includes stocks that demonstrate below-average share price volatility. A minimum volatility ETF looks to create an overall portfolio with the fewest possible volatility characteristics, but it can use a wide universe of stocks to achieve it.
The iShares MSCI USA Minimum Volatility Factor ETF can include high- and low-volatility individual stocks, as long as the entire portfolio is demonstrably low-volatility. That 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 can find themselves in the sweet spot during periods when share price gains may be minimal. The income generated by these portfolios can create a meaningful advantage when it comes to total returns.
The Vanguard High Dividend Yield ETF(NYSEMKT: VYM) is one of the more conservative ways to approach high yield. Its strategy is relatively bland and simple. It starts with a broad universe of dividend-paying stocks and simply selects the top half of yields for inclusion. This produces a portfolio that doesn’t necessarily have the highest yield in this space. But its broad diversification (it holds more than 600 stocks) helps eliminate some of the downside risk that investors could expose themselves to by reaching for higher yields.
SPDR Bloomberg 1-3 Month T-Bill ETF
The SPDR Bloomberg 1-3 Month T-Bill ETF(NYSEMKT: BIL) is the purest “take all risk off the table” option. If you feel like a major stock market correction is imminent, higher-for-longer yields make bonds unattractive options, or you just want to lock in gains and sit on the sidelines for a while, Treasury bills aren’t the worst option in the world.
This ETF is currently yielding 3.5%, which is competitive with most diversified equity income products. You essentially eliminate downside share price risk in the event that the Fed needs to raise rates or the market just moves in that direction on its own. The income component makes it a legitimate option to capture some risk-free return while waiting for some of the key economic and market risks to de-escalate.
Defensive investing isn’t necessarily the most popular idea right now. But these three ETFs give you solid alternatives should the current market rally start running out of steam.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.
