These are the days for market neutral strategies and ETFs, including the AGFiQ U.S. Market Neutral Anti Beta ETF (BTAL). Underscoring the utility of market neutrality when stocks tumble, BTAL is up more than 8.73% year-to-date.
The fund added to its August gains Monday, trading higher on volume that was roughly triple the daily average.
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. With investors ditching higher beta stocks amid geopolitical tensions with China and recession fears, BTAL’s long-short construction is shining.
When equity markets sell-off (generally accompanied by rising volatility), high beta sells off worse than low beta (spread widens), and BTAL captures this by its long/short methodology.
How To Handle High & Low-Beta Stocks
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.
Historical data confirm that BTAL is a winner around big S&P 500 sell-offs. There have been nine instances since inception S&P 500 TR Index sold off more than 5.00% and each time BTAL has provided positive absolute returns (100% of the time). Some recent examples include Q4 2018 when the S&P 500 lost 13.52% while BTAL gained 8.99%. In December 2018, when the S&P 500 lost 9.03%, BTAL gained 3.88%.
Related: Alternative ETF Strategies to Stay Invested, Hedge Downside Risks
In May, the S&P 500 lost more than 6%, but BTAL surged nearly 7%. From late July through August 8, the S&P 500 lost almost 3%, but BTAL added 6.90%.
During a market pullback, one may expect high beta stocks to underperform low beta stocks, which would help this fund’s strategy produce a positive return. Even if low beta does not outperform, BTAL likely will 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.
