When accounting for reinvested dividends, the S&P 500 is up 31.7% this year. The benchmark U.S. index has only sporadically traded below its 50-day simple moving average on a few occasions and not once has it closed below its 200-day line in 2013.
In other words, the 2013 rally in U.S. equities has been one short on legitimate corrections and that has the chorus calling for such a correction in 2014 growing louder. While expectations are in place that U.S. stocks will enjoy another strong year in 2014, few experts expect the S&P 500 will repeat 2013’s showing and some are forecasting a correction of up to 10%.
Investors can survive and thrive during a market pullback with exchange traded funds and thanks to some newer offerings, correction survival does not mean having to make a inverse, bearish bet.
Take the example of the Horizons S&P 500 Covered Call ETF (NYSEArca: HSPX), which not only helps investors damp volatility, but generate income in the process.[Covered Call ETFs Generate Income]
In sideways, bear or even modest bull markets, covered call ETFs such as HSPX can work in investors’ favor. By utilizing a covered call strategy, an investor who owns a stock sells call options, and collects the income from the premiums paid by the buyer of the option. Specifically, the underlying index utilizes an “out-of-the-money” covered call strategy. The out-of-the-money call option will take a strike price higher than the current market price of the underlying security. [Boost Portfolio Income With Covered Call ETFs]
HSPX also stacks up favorably against low volatility ETFs and has a new sector equivalent in the form of the Horizons Financial Select Sector Covered Call ETF (NYSEArca: HFIN).
Another credible pullback play is the PowerShares S&P 500 Downside Hedged Portfolio (NYSEArca: PHDG), which debuted just over a year ago and now has $112.3 million in assets under management.