Investors who are seeking for a way to diversify traditional assets, especially during periods of heightened risks, can consider an exchange traded fund that incorporates a type of “Anti-Beta” strategy to provide exposure to uncorrelated stock returns.
“Our view is returns will be much more modest,” Bill DeRoche, Chief Investment Officer & Portfolio Manager at AGF Investments LLC, told ETF Trends in a call. “Our view: what was generated in the 10-year to 15-year period; don’t expect the same.”
Given the quickly changing conditions, AGF Investments has highlighted the importance of alternative return streams and to diversify beyond traditionally equity and fixed-income assets.
“We think 10% to 15% to alternative strategies makes sense going forward,” DeRoche added.
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 manage hedging. 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.
BTAL provides investors with the means to capitalize on the spread return between low- and high-beta stocks within the S&P Dow Jones U.S. Index. When the market sells off and volatility rises, high-beta stocks tend to sell off more than low-beta stocks. On the other hand, during market recoveries, volatility diminishes and high-beta names outperform low-beta stocks.
During a market pullback, one may expect high beta stocks to underperform low beta stocks, which would help this fund strategy produce a positive return. Even if low beta does not outperform, BTAL likely would not pull back as much as the overall market since half of the portfolio is in a short or bearish position. However, potential investors should keep in mind that there is downside risk, especially during bullish market conditions.
For more information on alternative strategies, visit our Alternatives Channel.