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The case for conservative stocks, even as they get clobbered

Safe is no longer sound when investing in stocks.

For years, taking a conservative approach to investing in the stock market was the winning approach. You can see this through the success of low-volatility exchange-traded funds and some of the individual sectors these funds focused on, notably consumer staples.

It happens that consumer staples was one of the worst-performing TSX sectors in the past month. With investors taking a decidedly more speculative approach in recent days, steady blue chips are less in demand. Utility and telecom stocks, also defensive sectors, have struggled as well lately.

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The S&P/TSX composite index was up 0.6 per cent for the first two weeks of the year. A randomly chosen trio of Canadian market low-volatility ETFs did not fare as well. The worst performer in the group was the BMO Low Volatility Canadian Equity ETF (ZLB), down 1.7 per cent. The iShares Edge MSCI Min Vol Canada Index ETF (XMV) was down 0.8 per cent and the First Asset MSCI Canada Low Risk Weighted ETF (RWC) was off 0.4 per cent.

A two-week period of time is far from a definitive guide to investing trends. But there's no question that the mood of the markets has become much more tolerant of risk lately. That's why marijuana stocks are so popular and why the investing industry is so desperate to brings products to market with exposure to crypto-currencies and blockchain technology. This speculative period may have a while to run before it ends (probably in an ugly way). That means more disappointment ahead for the many investors holding low-volatility funds.

Still, there's a strong argument for sticking it out with these funds and not bailing. In fact, they might just be a sensible way to maintain your exposure to the stock market through the months ahead.

You'll likely be losing out with these funds as the markets press higher. But when the market turns lower, low-volatility funds will land with less of a thud than riskier investments or even the broader market. One caveat here is that there's no way to tell when the next stock market correction is coming. It could be a year or more away, which would mean a frustrating 2018 for holders of low volatility funds. Stay patient. One of the ways to generate good long-term investment returns is to give up some gains in good times, while losing less when markets head south.

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