With the broad market in constant flux recently, up one day and down the next, investors have been more anxious than usual. Some have scampered into cash, while others are invested in bonds or gold, seeking safety. Many investors are left wondering whether to try and time the markets or to sit out entirely.
“Ultimately as an investor you have to decide whether you’re going to try to time this. Are you actually going to change your portfolio allocation right now because you think we have a recession coming in 2020. If you’re a long-term investor generally, it’s a bit of a mugs game to try to time things like this. If you’re invested in Barraud, you know cap-weighted US equities, congratulations. You’re invested heavily in the cyclical sector with a little bit of defense in there. And if you’re feeling nervous about that, you’ve got to make a move to tilt more defensively,” said Dave Nadig of ETF.com on CNBC.
Investors looking at how to protect portfolios during times of market declines could consider an ETF like the AGFiQ US Market Neutral Anti-Beta Fund (BTAL), which in general, is inversely correlated with baskets of stocks like the S&P 500.
John Davi of Astoria Portfolio Advisors explained, “So the ETF goes long low beta stocks and short high beta stocks. So in risk off periods, BTAL will outperform, and it will be inversely correlated with the S&P.”
“It’s a -70% correlation. So alternative ETFs get a very bad name. You’re betting that this risk off will continue. You do get some upside participation, so there is some positive upside correlation with stars. But for the most part it’s -70% correlation to the S&P,” Davi continued.
Nadig sees this as a way for investors who have been out of the market to start to participate again with potentially less risk.
“If you’re nervous about getting into more equities or maybe you went to cash, congratulations, and you managed to avoid all the downturn, this is a great way to leg back in. Because as you point out there’s some long equity exposure here. But if you look over the last year for instance, the S&P was off a percent. It’s not that this went down 8% it was actually a 30%. Because it manage to have those negative bets in the right place at the right time,” Nadig added.
For more market trends, visit ETF Trends.