A Way to Hedge an ETF Portfolio Against Risk-Off Events

A Way to Hedge an ETF Portfolio Against Risk-Off Events

The recent geopolitical risk-induced hiccup in the equities market shows that investors are still at risk to swift and sudden turns. Exchange traded fund investors, though, may consider an alternative investment strategy to hedge against unwanted risks.

For instance, the AdvisorShares Ranger Equity Bear ETF (NYSEArca: HDGE), which tries to generate capital appreciation through short sales of domestic equities, tries to identify securities with low earnings quality or aggressive accounting which may be intended on the part of company management to mask operational deterioration and bolster the reported earnings per share over a short time period. This screen helps the fund hone in on those more at risk of a steep sell-off in periods of duress.

The Portfolio Manager also targets earnings driven events that may trigger a price decline of a security, such as downwards earnings revisions or reduced forward guidance.

While this strategy may be unpopular in an ongoing bull market condition, HDGE may help protect an investor’s portfolio.