A Hedged ETF With Some Upside Capture | ETF Trends

Investors unfamiliar with ETFs featuring hedging mechanisms used to guard against downside risks may think that markets need to falter in order to validate those funds. That’s not always the case as the AGFiQ Dynamic Hedged U.S. Equity ETF (USHG) proves.

The AGFiQ Dynamic Hedged U.S. Equity ETF provides exposure to a diversified portfolio of U.S. equities while seeking to provide long-term capital appreciation with lower volatility using embedded downside risk management which seeks to protect capital. The ETF offers exposure to the long-term growth potential of U.S. equities using a multi-factor approach designed in an effort to have lower volatility and better risk-adjusted returns relative to the market through its use of a dynamic hedging model.

USHG has returned nearly 8% this year, an admirable performance considering the fund’s hedging feature.

USHG offers traditional long exposure to U.S. stocks but uses a multi-factor approach aimed at reducing volatility. Additionally, the fund uses “proprietary sector allocation and risk models are evaluated on a daily basis so the portfolio can be responsive to changing market conditions,” according to the issuer.

Alternative Investment Strategy

Investors seeking an alternative investment strategy to hedge against further risks can consider defined outcome ETFs as these strategies can solve many of the problems with existing buffered structures and can be utilized to build better portfolios.

While stocks have recently ascended to record highs, there are other reasons to consider USHG and its “buffer” qualities. The U.S. dollar has strengthened this year, pressuring large companies with an international footprint. The prolonged trade war between the U.S. and China has also impeded a number of sectors and dented sentiment.

Investors should still keep in mind that we are in the late stages of a normal business cycle and should also be ready for the potential risks that this entails.

USHG’s sector allocation model is based on factors like size, valuation, momentum, and quality. The sector model uses a multi-factor approach and considers all S&P 500 sectors but is not expected to generally emphasize any particular factor, valuation method or sector.

For more investing ideas, visit our Alternatives Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.