One of the major consequences of the unique 2022 bear market was a proliferation in alternative exchange-traded funds, or ETFs, afterwards, which The Wall Street Journal termed “boomer candy.”
That year challenged many of the assumptions underlying the traditional 60/40 balanced portfolio of stocks and bonds. Amid historically high inflation and one of the most aggressive Federal Reserve tightening cycles in decades, both stocks and bonds declined simultaneously.
The issue largely came down to stock-bond correlation, or the degree to which the two asset classes move together. Historically, during the long period of declining interest rates across developed economies, bonds tended to provide a reliable counterweight to stocks during market downturns.
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When equities sold off, bond prices often rose as interest rates fell, helping stabilize portfolios and giving investors the ability to rebalance between the two asset classes. In 2022, however, that relationship broke down as inflation and rising yields pressured both stocks and fixed income at the same time.
Some institutional investors and advisors now question whether the old negative stock-bond correlation regime will fully return. As a result, some allocators have begun advocating for portfolio structures closer to a 40-30-30 model, referring to 40% stocks, 30% fixed income and 30% alternatives. This model has garnered attention in the wake of significant market volatility throughout 2026.
“The outbreak of war involving Iran has threatened critical energy transit routes like the Strait of Hormuz, causing sharp fluctuations in energy prices and keeping inflation risks elevated despite strategic oil reserve interventions,” explains Jeff Schwarte, chief equity strategist at Simplify Asset Management. “This persistent inflationary pressure has forced the Federal Reserve to maintain a strict higher-for-longer interest rate stance, challenging earlier expectations for a steady easing cycle.”
Many of these alternative ETFs rely on options strategies designed to limit the range of potential outcomes for investors. In exchange for capped upside participation and, in some cases, no dividend participation, investors may receive more explicit downside protection rather than relying solely on correlations holding between stocks and bonds.
“Correlations tend to break when you need them most,” says Matt Kaufman, senior vice president and global head of ETFs at Calamos Investments. “With options, you have contractual certainty, and that is what a lot of investors today are after.”
That does not mean the traditional stock-and-bond balanced portfolio is obsolete. There is still a strong case for simplicity, especially since many broad-market stock and bond ETFs remain highly diversified, fairly tax efficient and very affordable.
However, investors willing to look beyond traditional asset allocation may find that some alternative ETFs can potentially provide a smoother experience and better risk-adjusted returns.
Here are seven of the best smart ETFs for low-risk investors:
| ETF | Expense Ratio |
| Invesco S&P 500 Low Volatility ETF (ticker: SPLV) | 0.25% |
| Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) | 0.30% |
| iShares MSCI USA Min Vol Factor ETF (USMV) | 0.15% |
| FT Vest Laddered Buffer ETF (BUFR) | 0.95% |
| Calamos Laddered S&P 500 Structured Alt Protection ETF (CPSL) | 0.79% |
| Simplify US Equity PLUS Downside Convexity ETF (SPD) | 0.53% |
| Simplify Hedged Equity ETF (HEQT) | 0.43% |
Invesco S&P 500 Low Volatility ETF (SPLV)
“SPLV holds the 100 stocks in the S&P 500 with lowest one-year trailing standard deviation of returns,” explains Nick Kalivas, head of factor and core equity ETF product strategy at Invesco. “Stocks are weighted by inverse volatility so that the stocks with the lowest volatility get the highest weight, and the process is repeated four times a year.” SPLV does not employ derivatives or shorting for protection.
Compared to the vanilla S&P 500, SPLV’s portfolio is overweight defensive, less-cyclical sectors like utilities and consumer staples. In 2022, the ETF was only down 4.9% on a total return basis by year end, while the State Street SPDR S&P 500 ETF Trust (SPY) fell 18.2%. SPLV charges a 0.25% expense ratio. The ETF currently has a 2.3% 30-day SEC yield and pays distributions monthly rather than quarterly.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
“SPHD holds 50 stocks in the S&P 500 with the highest yield and lowest one-year trailing standard deviation,” Kalivas says. “The stocks in SPHD are weighted by their 12-month trailing dividend yield with a 3% cap per stock and 25% sector limitation.” This ETF delivers a high 4.6% 30-day SEC yield with monthly distributions, but is slightly more expensive than SPLV with a 0.3% expense ratio.
“The low volatility screen is used with the expectation of reducing the risk of holding stocks vulnerable to a cut in their dividend,” Kalivas notes. Many dividend ETFs attempt to avoid so-called yield traps simply by excluding the highest-yielding decile or quartile of stocks. SPHD instead explicitly incorporates historical volatility into its methodology, while not picking dividend stocks on headline yield alone.
iShares MSCI USA Min Vol Factor ETF (USMV)
One criticism of low-volatility ETFs like SPLV is that their methodology can create sector concentration. While those concentrations often land in more defensive areas such as utilities, consumer staples and health care, the trade-off is that the portfolio can significantly underweight higher-growth sectors like technology and consumer discretionary. Over time, that can increase the risk of lagging the market.
Minimum-volatility ETFs differ from simpler low-volatility strategies. Rather than merely selecting stocks with the lowest historical volatility, USMV uses a quantitative optimization process to build a portfolio that attempts to minimize volatility at the aggregate portfolio level, while still maintaining overall sector exposures closer to the broader U.S. market. USMV charges a 0.15% expense ratio.
FT Vest Laddered Buffer ETF (BUFR)
“Buffer ETFs help narrow the range of possible return outcomes for the index that they track,” says Mark Andraos, partner and wealth advisor at Regency Wealth Management. “Think of them as ‘gutter guards’ when you went bowling as a child; the rails help keep you in a specified range.” For example, BUFR is a fund-of-funds that holds 12 monthly buffer ETFs protecting against the first 10% of losses before fees.
“The cost of paying for the downside protection is capped upside potential,” Andraos says. “If you think the market is poised for a breakout and will rally significantly from its current levels, buffer ETFs may not be suitable, as your upside will be capped to cover the cost of the downside protection.” Moreover, many buffer ETFs only provide price appreciation and pay no dividends, which can reduce total return.
Calamos Laddered S&P 500 Structured Alt Protection ETF (CPSL)
“CPSL is a laddered portfolio of all the monthly vintages of our S&P 500 Structured Protection ETFs,” Kaufman explains. “Each vintage has a one-year outcome designed to deliver upside to the S&P 500 to a cap, with 100% protection over the outcome period.” This ETF provides greater downside protection than BUFR does, but caps upside price appreciation potential more aggressively as a trade-off.
Most buffer ETFs provide point-to-point protection over a specific outcome period, often tied to a particular month. That requires investors to actively time entry points to maintain consistent protection characteristics. “When laddered in a single ETF like CPSL, you obtain better diversification of outcome periods, reduce timing and maturity risk, and smooth upside capture over time,” Kaufman explains.
Simplify US Equity PLUS Downside Convexity ETF (SPD)
“Tech companies have aggressively ramped up their capital expenditure to build data centers, flooding credit markets with corporate debt and sparking periodic sell-offs whenever investors grow impatient over the timeline for profitability,” Schwarte says. “These factors have created a high-dispersion environment where corporate earnings are forced to compete with macroeconomic uncertainty.”
Investors worried about a repeat of the dot-com bubble may find SPD appealing as an alternative core holding. The ETF combines long exposure to the S&P 500 with a protective options overlay designed to provide convexity, meaning downside protection can accelerate as market losses deepen rather than moving in a simple one-to-one relationship. SPD charges a 0.53% expense ratio.
Simplify Hedged Equity ETF (HEQT)
HEQT’s core is the S&P 500, but the ETF augments this with a “put spread collar,” consisting of a 5% out-of-the-money (OTM) long put, a 20% OTM short put and a covered call. This strategy minimizes the variability of outcomes for investors. “Since its inception on Nov. 2, 2021, HEQT has significantly reduced risk, with realized volatility of 8.6% compared to 17.6% for the S&P 500,” Schwarte explains.
Unlike most buffer ETFs, HEQT’s protection is evergreen. “By implementing a laddered collar strategy with options expiring over three sequential months, HEQT aims to enhance stability and reduce the impact of rebalancing luck, ensuring a more consistent hedged equity experience,” Schwarte explains. “HEQT’s maximum drawdown of 11.5% is less than half that of the S&P 500’s 24.5%.”
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7 Smart ETFs for Low-Risk Investors originally appeared on usnews.com
Update 05/27/26: This story was previously published at an earlier date and has been updated with new information.
