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Volatility has risen in recent weeks amid the tech sell-off and upcoming elections. The volatility level represented by the CBOE Volatility Index, also known as the fear gauge, rose 11.7% over the past week. This suggests that market worries have started to set in. This fear gauge tends to outperform when markets are declining or fear levels about the future are high.
The tech titans, which powered the market rally this year, lost their sheen on Trump trade resurgence. The chances of Donald Trump winning in November have risen steadily. Trump favors higher tariffs, particularly on imports from China, that could potentially hurt semiconductor stocks. Meanwhile, Joe Biden dropped his bid for re-election in the presidential race and Kamala Harris is now the potential Democrat candidate (read: Trump Trade Resurgence: ETF Areas Set to Gain or Lose).
The pain intensified this week after Tesla (TSLA - Free Report) and Alphabet (GOOGL - Free Report) failed to cheer investors after their quarterly results. The results sparked a huge sell-off in the technology sector, with the “Magnificent 7” stocks losing more than $750 billion in market cap on Jul 24, the most on record for the group. The dismal trading led to the biggest percentage decline of 3.6% in the tech-heavy Nasdaq Composite Index since October 2022. The rout wiped out about $1 trillion in market capitalization from the tech-heavy index on Jul 24 (read: Tesla, Google Spark Sell-Off in Technology ETFs).
In such a scenario, investors should apply some hedging techniques to their equity portfolio to reduce the overall volatility or protect against significant market downturns. While there are several ways to do this, ETFs seem compelling choices. Some of these are Simplify Hedged Equity ETF (HEQT - Free Report) , Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) , Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) , iMGP DBi Managed Futures Strategy ETF (DBMF - Free Report) and Aptus Drawdown Managed Equity ETF (ADME - Free Report) .
Investors should note that these funds have the potential to stand out and outperform simple vanilla funds in case of rising volatility. However, these ETFs may not always provide complete protection during extreme market events, and they may have additional costs associated with their hedging strategies.
Simplify Hedged Equity ETF seeks to provide capital appreciation by offering U.S. large-cap exposure while investing in a series of put-spread collars designed to help reduce volatility. By deploying a ladder of collars that expire over three sequential months, the fund seeks to create a hedged equity experience.
With AUM of $184.4 million, Simplify Hedged Equity ETF charges 53 bps in annual fees and trades in a volume of 53,000 shares.
Global X Nasdaq 100 Covered Call ETF follows a “covered call” or “buy-write” strategy, in which the fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index. It seeks to track the Cboe Nasdaq-100 BuyWrite V2 Index (read: Worried About Tech Selloff? ETF Strategies to Play).
Global X Nasdaq 100 Covered Call ETF has $8.3 billion in AUM and trades in a solid volume of 4 million shares a day on average. It charges 61 bps in annual fees from investors.
Invesco S&P 500 Downside Hedged ETF is an actively managed fund that seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. Invesco S&P 500 Downside Hedged ETF tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework.
Invesco S&P 500 Downside Hedged ETF has accumulated $125.2 million in its asset base and charges 39 bps in fees per year from its investors. Volume is good, exchanging 11,000 shares a day on average.
iMGP DBi Managed Futures Strategy ETF seeks long-term capital appreciation. It will employ long and short positions in derivatives, primarily futures contracts and forward contracts, across the broad asset classes of equities, fixed income, currencies and commodities.
iMGP DBi Managed Futures Strategy ETF has AUM of $1.1 billion and charges 85 bps in annual fees. It trades in a moderate volume of 305,000 shares a day on average.
Aptus Drawdown Managed Equity ETF seeks capital appreciation with a focus on managing drawdown risk through hedges. The strategy typically selects 50-75 large U.S. companies based on a Yield plus Growth framework, tilting holdings to favor companies with solid fundamentals and reasonable valuations while avoiding those with negative price momentum. It has an added objective of capital protection through the use of equity and index options to reduce drawdown when U.S. equity markets are falling.
Aptus Drawdown Managed Equity ETF charges 79 bps in annual fees and has accumulated $188.7 million in its asset base. It trades in an average daily volume of 15,000 shares.
Bottom Line
Investors can shield their portfolios against volatility with the help of the abovementioned products. These provide dynamic exposure according to the level of market volatility and are least affected by any market turmoil. So, they could prove to be great choices when it comes to offering protection against market downturns.
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5 ETFs to Bet On Amid Tech-Driven Market Sell-Off
Volatility has risen in recent weeks amid the tech sell-off and upcoming elections. The volatility level represented by the CBOE Volatility Index, also known as the fear gauge, rose 11.7% over the past week. This suggests that market worries have started to set in. This fear gauge tends to outperform when markets are declining or fear levels about the future are high.
The tech titans, which powered the market rally this year, lost their sheen on Trump trade resurgence. The chances of Donald Trump winning in November have risen steadily. Trump favors higher tariffs, particularly on imports from China, that could potentially hurt semiconductor stocks. Meanwhile, Joe Biden dropped his bid for re-election in the presidential race and Kamala Harris is now the potential Democrat candidate (read: Trump Trade Resurgence: ETF Areas Set to Gain or Lose).
The pain intensified this week after Tesla (TSLA - Free Report) and Alphabet (GOOGL - Free Report) failed to cheer investors after their quarterly results. The results sparked a huge sell-off in the technology sector, with the “Magnificent 7” stocks losing more than $750 billion in market cap on Jul 24, the most on record for the group. The dismal trading led to the biggest percentage decline of 3.6% in the tech-heavy Nasdaq Composite Index since October 2022. The rout wiped out about $1 trillion in market capitalization from the tech-heavy index on Jul 24 (read: Tesla, Google Spark Sell-Off in Technology ETFs).
In such a scenario, investors should apply some hedging techniques to their equity portfolio to reduce the overall volatility or protect against significant market downturns. While there are several ways to do this, ETFs seem compelling choices. Some of these are Simplify Hedged Equity ETF (HEQT - Free Report) , Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) , Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) , iMGP DBi Managed Futures Strategy ETF (DBMF - Free Report) and Aptus Drawdown Managed Equity ETF (ADME - Free Report) .
Investors should note that these funds have the potential to stand out and outperform simple vanilla funds in case of rising volatility. However, these ETFs may not always provide complete protection during extreme market events, and they may have additional costs associated with their hedging strategies.
ETFs in Focus
Simplify Hedged Equity ETF (HEQT - Free Report)
Simplify Hedged Equity ETF seeks to provide capital appreciation by offering U.S. large-cap exposure while investing in a series of put-spread collars designed to help reduce volatility. By deploying a ladder of collars that expire over three sequential months, the fund seeks to create a hedged equity experience.
With AUM of $184.4 million, Simplify Hedged Equity ETF charges 53 bps in annual fees and trades in a volume of 53,000 shares.
Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report)
Global X Nasdaq 100 Covered Call ETF follows a “covered call” or “buy-write” strategy, in which the fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index. It seeks to track the Cboe Nasdaq-100 BuyWrite V2 Index (read: Worried About Tech Selloff? ETF Strategies to Play).
Global X Nasdaq 100 Covered Call ETF has $8.3 billion in AUM and trades in a solid volume of 4 million shares a day on average. It charges 61 bps in annual fees from investors.
Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report)
Invesco S&P 500 Downside Hedged ETF is an actively managed fund that seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. Invesco S&P 500 Downside Hedged ETF tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework.
Invesco S&P 500 Downside Hedged ETF has accumulated $125.2 million in its asset base and charges 39 bps in fees per year from its investors. Volume is good, exchanging 11,000 shares a day on average.
iMGP DBi Managed Futures Strategy ETF (DBMF - Free Report)
iMGP DBi Managed Futures Strategy ETF seeks long-term capital appreciation. It will employ long and short positions in derivatives, primarily futures contracts and forward contracts, across the broad asset classes of equities, fixed income, currencies and commodities.
iMGP DBi Managed Futures Strategy ETF has AUM of $1.1 billion and charges 85 bps in annual fees. It trades in a moderate volume of 305,000 shares a day on average.
Aptus Drawdown Managed Equity ETF (ADME - Free Report)
Aptus Drawdown Managed Equity ETF seeks capital appreciation with a focus on managing drawdown risk through hedges. The strategy typically selects 50-75 large U.S. companies based on a Yield plus Growth framework, tilting holdings to favor companies with solid fundamentals and reasonable valuations while avoiding those with negative price momentum. It has an added objective of capital protection through the use of equity and index options to reduce drawdown when U.S. equity markets are falling.
Aptus Drawdown Managed Equity ETF charges 79 bps in annual fees and has accumulated $188.7 million in its asset base. It trades in an average daily volume of 15,000 shares.
Bottom Line
Investors can shield their portfolios against volatility with the help of the abovementioned products. These provide dynamic exposure according to the level of market volatility and are least affected by any market turmoil. So, they could prove to be great choices when it comes to offering protection against market downturns.