A Bright Idea For Protecting Long Equity Exposure | ETF Trends

Stocks are performing well, but the potential for headline risk, be it geopolitical or earnings-related remains, indicating investors may want to consider hedging equity bets with alternative exchange traded funds such as the AGFiQ Dynamic Hedged U.S. Equity ETF (USHG).

The AGFiQ Dynamic Hedged U.S. Equity ETF provides access 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.

“A long-short investment strategy differs from a long-only investment strategy in that an investor can also ‘short’ securities in the portfolio,” according to AGF research. “Removing the long-only constraint in a portfolio means that the securities ranked poorly by the model can be more than simply underweighted relative to the benchmark or absent from the portfolio, rather investors can actually short these names and benefit from their price depreciation. This results in the security exhibiting an effectively negative weight in the portfolio.”

In addition to the ease of managing one position as opposed to two or more, the expressed view captured in one ETF is also more cost-effective. Furthermore, it potentially gives an investor access to additional returns as opposed to a long-only or short-only position, provided the markets go in the perceived direction as intended.

Loving Long/Short

The long-short strategy employed by USHG has the potential to act as a hedge in down markets while tempering large drawdowns.

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.

USHG, which debuted in May, charges 0.55% per year, or $55 on a $10,000 investment, making it cost-effective relative to competing strategies.

For more information on alternative strategies, visit our Alternatives Channel.