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Twenty low-volatility stocks for turbulent times

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What are we looking for?

If January maintains its reputation as the trendsetter for the rest of the year, this could be a nasty one. Coming off a year that was both relatively stable and generally rewarding for stock investors, uncertainty has crept back into all corners of the market. Some emerging market economies are trying to stop currency runs, the loonie is in a tailspin, the Canadian economic outlook is darkening and the implications of the U.S. Federal Reserve's slow withdrawal of monetary accommodation remains unclear.

After all that, the S&P/TSX composite index is pretty well flat year to date. But the volatility seen throughout the month tested fragile nerves. For investors who value their sleep, we looked for low-volatility stocks in turbulent times.

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How we did it

There are many ways to measure volatility, but one simple way to track stable stocks is through the PowerShares S&P/TSX Composite Low Volatility Index ETF, which – before fees and expenses – tracks the S&P/TSX Composite Low Volatility Index. The ETF includes 50 Canadian equities exhibiting the lowest volatility over the past year – the least volatile get the highest weightings, which are rebalanced quarterly. We produced a table of the ETF's current top 20 weightings.

What we found

Not surprisingly, the list is dominated by large-cap companies, with Canadian banks residing at the top of the list. The stocks included have an average dividend yield well in excess of the market average, while price-to-earnings ratios are generally lower than the S&P/TSX average.

Of course, peace of mind can come at a price. While Standard & Poor's found its index's returns generally outpaced the market when it introduced its low volatility index in 2012, the ETF has underperformed the TSX benchmark in price gains both in 2013 (7.8 per cent versus 9.6 per cent, respectively) and year to date (minus 1.8 per cent for the ETF compared with 0.8 per cent for the S&P/TSX).

Globe app users click here for table.

There are many ways to measure volatility, but one simple way to track stable stocks is through the PowerShares S&P/TSX Composite Low Volatility Index ETF, which – before fees and expenses – tracks the S&P/TSX Composite Low Volatility Index. The ETF includes 50 Canadian equities exhibiting the lowest volatility over the past year – the least volatile get the highest weightings, which are rebalanced quarterly. We produced a table of the ETF's current top 20 weightings.

PowerShares S&P/TSX Comp. Low Volatility Index ETF (Top 20 weightings)

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About the Author
Investing reporter

Tim Shufelt joined the Globe and Mail in August, 2013, primarily to cover investments for Report on Business. Prior to the Globe, he worked as a staff writer at Canadian Business magazine, a business reporter at the Financial Post, and covered city news and courts for the Ottawa Citizen. More

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