After a seven year bull run and an increased uncertainty, people may expect the equities market will more likely pullback and give up some of its gains. Consequently, traders have turned to bearish or inverse exchange traded fund strategies to hedge against turns in a more volatile market.
On an upcoming webcast this Wednesday, Sector Strategies in a Post Brexit World, Tom Dorsey, Co-Founder of Dorsey, Wright & Associates, and Sylvia Jablonski, Managing Director and Head of the Capital Markets & Institutional Strategy Team at Direxion, will discuss hedging strategies to manage a rougher road ahead.
According to Jefferson National’s second annual Advisory Authority Survey, financial advisors see ongoing volatility as one of the top macro issues that will adversely affect client portfolios over the next year, ThinkAdvisor reports.
Related: VIX, Bearish S&P 500 ETFs to Hedge Uncertainty
Specifically, 76% of RIAs and fee-based advisors, 89% of the highest earning advisors and 63% of investors in the survey expected volatility to rise in the coming year as both U.S. politics and domestic and international economics exacerbate the uncertain outlook. Among the top concerns, those surveyed pointed to energy prices, Federal Reserve policy, U.S. presidential election and Chinese instability.
“When it comes to investing, protecting clients’ portfolios and protecting their own practice, ongoing volatility remains the number one concern of RIAs and fee-based advisors year over year — while investors are aware of volatility’s impact, they say that protecting assets is their number-one concern,” Jefferson National president Laurence Greenberg said in a statement.
[related_stories]Among those surveyed 48% of all RIAs and fee-based advisors looked to ETFs and alternative mutual funds as their number one solution in today’s volatile markets. Additionally, 60% of high earning advisors pointed to liquid alternatives.
ETF traders also have a number of liquid alternative strategies to choose from. For instance, the Direxion Daily S&P Biotech Bear 1X Shares (NYSEArca: LABS), Direxion Daily Financial Bear 1x Shares (NYSEArca: FAZZ) and Direxion Daily Energy Bear 1x Shares (NYSEArca: ERYY) provide inverse or -100% exposure to some of the more volatile areas of the market this year.
Related: ETF Traders Look Beyond Brexit to China Risk
LABS may be a good way for investors to hedge against further selling in the biotech sector as political rhetoric puts a spotlight on pharmaceutical treatment prices and the growth play sours. FAZZ could be used to hedge against the Brexit fallout and potentially extended low-rate environment, which could weigh on the financial sector. Any further concerns on global growth and oil prices could also help traders hedge against a weakening energy sector with ERYY.
Financial advisors who are interested in learning more about sector strategies can register for the Wednesday, June 29 webcast here.