Investors who are maintaining exposure to the current markets should consider alternative assets and ETF strategies to better manage risk in case of market pullback.
When looking at the markets today, it “really is about how to position portfolios for longer returns, larger drawdowns and higher risk,” Mark Stacey, Senior Vice President and Co-CIO of AGFiQ, told ETF Trends.
Currently, the markets are bracing for the Federal Reserve as many have already priced in interest rate cuts. However, 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.
“This is about how to position forward and think about downside protection,” Stacey said.
It is important to “find asset classes less correlated to market or even uncorrelated,” he added.
Specifically, Stacey singled out the infrastructure category as the industry enjoys even growth and potential support from increased government spending to update out-dated structure and build out new areas to expand the economy. The infrastructure category has also historically offered higher dividend yields than global fixed-income and global equities, along with greater predictability of long-term cash flows. The ETF may be able to capture the growing demands of economic developing that are driving more funding into transport, power and other systems.
Investors can get defensive with infrastructure by using exchange traded funds, such as the AGFiQ Global Infrastructure ETF (GLIF). The AGFiQ Global Infrastructure ETF uses a multi-factor investment process to seek long-term capital appreciation by investing primarily in global equity securities in the infrastructure industry.
As a way to better manage potential drawdowns ahead, investors can look to a negative-beta strategy like the AGFiQ U.S. Market Neutral Anti Beta ETF (BTAL) to better hedge risks. BTAL acts as a type of long/short strategy that goes long low beta stocks and short high beta stocks. Consequently, the ETF strategy can produce positive returns any time low beta outperforms high beta.
Additionally, the AGFiQ Dynamic Hedged U.S. Equity ETF (USHG) could better address volatility and risk management. 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.
For more investing ideas, visit our Alternatives Channel.