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More Pain Ahead for Markets? Defensive ETFs to Play
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With volatility being the catchword now in the broader equity market, investors might be clueless about the future movement. There have been wild swings in Wall Street so far this year due to hot inflation, rising rate worries, geopolitical tensions, China’s zero-Covid policy and frequent lockdowns as well as supply chain woes.
Almost same is the situation in other international markets as most developed economies have been experiencing hot sky-high inflation. Rising rate concerns are rife globally. And this concern is not likely to go away soon. Continued rising rates may send the key economies into recession. Hence, equity market volatility is here to stay for some time.
History shows that bear market still has more pain to on markets before it bottoms, as quoted on CNBC. Interactive Brokers’ chairman and founder Thomas Peterffy also sees the S&P 500 dropping nearly 20% from here to bottom at around 3,000, quoted on CNBC. As a result, investors should consider alternative assets to protect their portfolios against volatility.
Why to Tap Long/Short ETFs?
In a long-short investment strategy, the fund goes long stocks that are expected to outperform the market, while taking short positions in stocks that are likely to underperform. These strategies have the potential to outperform in both rising and falling markets. They also add diversification benefits to a portfolio and lower volatility due to low correlations with broader indexes (read: Why Long-Short ETFs are Beating the Market).
ETFs in Focus
Below we highlight a few long/short ETFs that trumped the S&P 500 in the past one month (as of Oct 19, 2022).
The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long / short market neutral index that is dollar-neutral. The expense ratio of the fund BTAL is 2.53%.
This ETF is active and does not track a benchmark. The KFA Mount Lucas Index Strategy ETF seeks to provide a total return that, before fees and expenses, exceeds that of the KFA MLM Index over a complete market cycle. The fund charges 92 bps in fees and yields 4.76% annually.
This ETF is active and does not track a benchmark. The Franklin Systematic Style Premia ETF seeks to manage risk and may also help to mitigate drawdowns for the overall portfolio. The fund charges 65 bps in fees.
This ETF is active and does not track a benchmark. The Convergence investment process captures the best attributes of both quantitative and fundamental methods. This "quantamental" investment approach combines the bottom-up fundamental methods of its experienced managers, along with tools and technologies to efficiently organize vast amounts of investment data. The expense ratio of the fund is 1.56% annually.
This ETF is active and does not track a benchmark. The LHA Market State Alpha Seeker ETF seeks to provide positive returns, across multiple market cycles, that are generally not correlated to the US equity or fixed income markets. The expense ratio of the fund is 1.42% annually.
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More Pain Ahead for Markets? Defensive ETFs to Play
With volatility being the catchword now in the broader equity market, investors might be clueless about the future movement. There have been wild swings in Wall Street so far this year due to hot inflation, rising rate worries, geopolitical tensions, China’s zero-Covid policy and frequent lockdowns as well as supply chain woes.
Almost same is the situation in other international markets as most developed economies have been experiencing hot sky-high inflation. Rising rate concerns are rife globally. And this concern is not likely to go away soon. Continued rising rates may send the key economies into recession. Hence, equity market volatility is here to stay for some time.
History shows that bear market still has more pain to on markets before it bottoms, as quoted on CNBC. Interactive Brokers’ chairman and founder Thomas Peterffy also sees the S&P 500 dropping nearly 20% from here to bottom at around 3,000, quoted on CNBC. As a result, investors should consider alternative assets to protect their portfolios against volatility.
Why to Tap Long/Short ETFs?
In a long-short investment strategy, the fund goes long stocks that are expected to outperform the market, while taking short positions in stocks that are likely to underperform. These strategies have the potential to outperform in both rising and falling markets. They also add diversification benefits to a portfolio and lower volatility due to low correlations with broader indexes (read: Why Long-Short ETFs are Beating the Market).
ETFs in Focus
Below we highlight a few long/short ETFs that trumped the S&P 500 in the past one month (as of Oct 19, 2022).
AGFiQ US Market Neutral Anti-Beta Fund (BTAL - Free Report)
The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long / short market neutral index that is dollar-neutral. The expense ratio of the fund BTAL is 2.53%.
KFA Mount Lucas Index Strategy ETF (KMLM - Free Report)
This ETF is active and does not track a benchmark. The KFA Mount Lucas Index Strategy ETF seeks to provide a total return that, before fees and expenses, exceeds that of the KFA MLM Index over a complete market cycle. The fund charges 92 bps in fees and yields 4.76% annually.
Franklin Systematic Style Premia ETF (FLSP - Free Report)
This ETF is active and does not track a benchmark. The Franklin Systematic Style Premia ETF seeks to manage risk and may also help to mitigate drawdowns for the overall portfolio. The fund charges 65 bps in fees.
Convergence Long/Short Equity ETF (CLSE - Free Report)
This ETF is active and does not track a benchmark. The Convergence investment process captures the best attributes of both quantitative and fundamental methods. This "quantamental" investment approach combines the bottom-up fundamental methods of its experienced managers, along with tools and technologies to efficiently organize vast amounts of investment data. The expense ratio of the fund is 1.56% annually.
LHA Market State Alpha Seeker ETF (MSVX - Free Report)
This ETF is active and does not track a benchmark. The LHA Market State Alpha Seeker ETF seeks to provide positive returns, across multiple market cycles, that are generally not correlated to the US equity or fixed income markets. The expense ratio of the fund is 1.42% annually.