AGFiQ On BTAL's Function During A Market Correction | ETF Trends

ETF Trends spoke with Mark Stacey, Senior Vice President, Co-CIO AGFiQ Quantitative Investing, and Head of Portfolio Management, about AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL). The discussion was specifically focused on its consideration when the possibility of a market correction is in the air.

As Stacey explains, BTAL is constructed to be long low beta, short high beta. So, in a market of corrections, when the market is down, BTAL has a negative beta. This will lead to positive returns when BTAL’s targeting for the outcome in a down market. 

The benefits will emphasize how BTAL is a risk-diversifier, so with after-market corrections, because of those protections, an investor will not have gone down as much. Less risk ends up benefiting the portfolio, and the investor will have more wealth as well. Additionally, investors will be able to build more wealth, going forward, because they’ll be starting from a higher level.

“So that’s a benefit of a market correction,” Mark notes, while further going on to explain BTAL. “It smooths a return during that correction period.

Big BTAL Business

Additionally, BTAL can be a helpful force in a situation seen more recently. If the market is strong, high beta does tend to outperform low beta. From a return perspective, BTAL may deliver negative returns, though it still has that risk diversification benefit, which is a benefit. That’s due to wanting to think about pairings, i.e., something that’s less correlated, ultimately resulting in reduced risk.

However, there are some unique circumstances, as well. As Stacey points out, “In Q4, the market was very strong. So far this year, the market has also started very strong. You would hear headlines about how the market was reaching new highs throughout the first couple weeks of the market. Still, what may have been missed is how BTAL was positive throughout 2020. As of the end of January, it was ahead of the S&P 500.”

This shows how there’s a lot of information in BTAL, as these results mean the low beta stocks are outperforming high beta stocks, which has been happening all year, so far. So, even taking into account the Coronavirus and the correction that’s happened so far, this has been taking place beforehand. BTAL has had positive returns, and perhaps the market could be taking a defensive tone, meaning a shift in market positioning could occur.

Related: AGFiQ’s Alternative Approach to Investing With ‘BTAL’ ETF 

So, as the market moves through this early part of the year, low beta is an excellent area to be in. Pairing long low beta and short high beta the way BTAL does, is an ideal way to capture this, which has so far worked to outperform the market.

“It doesn’t have to be used only in market corrections,” Stacey adds. “Even before you get to the market corrections, it’s a nice thing to have.”

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