Invest in these volatility hedge ETFs to protect your portfolio
Wall Street is currently playing a tug-of-war between bulls and bears. The wider spread of COVID-19 vaccines, a larger vaccination campaign, improved economic growth, a broad stimulus and resumption of corporate profit growth have fueled the bulls. The latest batch of data also painted a bullish picture of US consumers.
Retail sales unexpectedly surged in August as a pickup in buying across most categories more than offset weakness in auto dealers, showing resilient consumer demand for the merchandise. The price of oil has also jumped due to tightening supply conditions and improving demand prospects. In fact, Wall Street has been the most bullish in stocks for nearly two decades with around 56% of all referrals on S&P 500 companies listed as buyers, the highest since 2002 (read: Energy ETFs: a bright spot in the midst of volatility).
On the other hand, a resurgence of COVID-19 infection has raised concerns that the economy is reopening, causing bears to pay. The United States is now averaging nearly 136,000 new cases of COVID-19 in the past seven days and vaccination rates have slowed since April. Possible corporate tax increases in the United States, a slowdown in China, and signs of higher inflation are also making investors nervous. Producer prices in the United States rose 0.7% and 8.3% year-over-year in August, leading to the biggest annual gain in nearly 11 years and indicating that inflation high was likely to persist as the pandemic strained supply chains.
In such a scenario, investors should apply certain hedging techniques to their equity portfolio. While there are several ways to do this, we have highlighted five volatility hedged ETFs that could prove beneficial in an uncertain market environment. Investors should note that these funds have the potential to stand out and outperform single vanilla funds in times of increasing volatility.
How to play
Horizon First Trust HUSV Domestic Managed Volatility ETF
HUSV is an actively managed ETF offering exposure to 75 national stocks that appear to have low volatility going forward. Information technology, consumer staples, industry and healthcare are the top four sectors, each with a double-digit allocation. It has amassed $ 120.8 million in its asset base, but sees a lower average daily volume of 7,000 shares. The expense ratio is 0.70%.
Innovator Laddered Fund of US Equity Power Buffer ETF BUFF
This fund tracks the Refinitiv Laddered Power Buffer Strategy Index, which has an equal weight allocation to each of the 12 Innovator US Equity Power Buffer ETFs that provide the rise in US equities, subject to caps, while amortizing the top 15%. US stocks. equity losses. With assets under management of $ 63.1 million, it charges investors 99 basis points in annual fees and trades an average daily volume of 14,000 shares.
DeltaShares S&P 500 Managed Risk ETF DMRL
This ETF seeks to replicate the S&P 500 Managed Risk 2.0 Index, which is designed to simulate a downside-protected portfolio using a framework that includes targeted volatility and a synthetic option overlay to hedge the downside risk of the portfolio. DMRL has accumulated nearly $ 423 million in its asset base and trades a slight volume of 5,000 shares. It charges 35 basis points of fees per year.
Invesco S&P 500 ETF Downside Hedged PHDG
This actively managed fund seeks to generate positive returns in rising or falling markets that are not directly correlated to the general returns of equities or fixed income securities. It tries to track the S&P 500 Dynamic VEQTOR Index, which offers broad exposure to the equity market with implied volatility hedging by dynamically allocating between different asset classes: equities, volatility and cash. The S&P 500 Total Return Index represents the equity component while the S&P 500 VIX Short-Term Futures Index represents the volatility component of the index. The part excluding equities (volatility + cash) represents a quarter of the portfolio while the rest goes to equities. The fund has accumulated $ 232.5 million in its asset base and charges investors 40 basis points in fees per year. Volume is light, trading 71,000 shares per day on average (read: Growth concerns to drive demand for low volatility ETFs).
Aptus Drawdown Managed Equity ETF ADME
This ETF seeks capital appreciation with an emphasis on managing drawdown risk through hedging. The strategy typically selects 50-75 large US companies based on a yield plus growth framework, filtering applicants based on dividend yield, growth prospects, valuation, and price dynamics. It has an additional objective of protecting capital through the use of stock and index options to reduce the drawdown when the US stock markets are down. The fund charges 79 basis points in annual fees and has accumulated $ 270.4 million in its asset base. It trades an average daily volume of 40,000 shares.
Investors can certainly protect their portfolio against volatility with the help of the products mentioned above. These offer dynamic exposure depending on the level of market volatility and are the least affected by market turbulence. Thus, they could prove to be excellent choices when it comes to offering protection against the market downturn.
5 actions in the process of doubling
Each has been handpicked by a Zacks expert as the # 1 favorite stock to earn + 100% or more in 2021. Previous recommendations have climbed + 143.0%, + 175.9%, +498 , 3% and + 673.0%.
Most of the stock in this report is flying under Wall Street’s radar, which provides a great opportunity to get into the ground floor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.