More recently, two “tail” or “downside” hedged ETFs have been launched: the First Trust CBOE S&P 500 VIX Tail Hedge Fund (NYSEArca: VIXH) and PowerShares S&P 500 Downside Hedged Portfolio (NYSEArca: PHDG). Both funds will shift its position in the S&P 500 and call options on VIX futures, based on current market volatility. [PowerShares Readies ‘Downside Hedged’ ETF]

The tail hedging strategy protects a portfolio from extreme market oscillations due to unpredictable, random and unexpected events, or “Black Swan” events. The term was coined in a 2007 book by Nassim Nicholas Taleb published right before the financial crisis hit.

For more information on low-volatility funds, visit our low-volatility category.

Max Chen contributed to this article.