How to Effectively Hedge Domestic Equity Exposure

In a turbulent market climate, investors may be looking for ways to hedge domestic equity exposure. The newly minted AGFiQ Dynamic Hedged U.S. Equity ETF (USHG) can help with that objective.

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.

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.

Actively managed, USHG uses the popular ETF of ETFs methodology, meaning its holdings are other ETFs. USHG’s top holding is its stablemate, the AGFiQ U.S. Market Neutral Anti Beta ETF (BTAL).

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.

A Look At USHG’s Other Holdings: SPDR ETFs

USHG’s other holdings are the sector SPDR ETFs. The fund currently holds nine of the 11 sector SPDR ETFs.

The sector allocation model is based on factors like size, valuation, momentum and quality. The sector model uses a multi-factor approach and considers all S&P 500 sectors but is not expected to generally emphasize any particular factor, valuation method or sector.

USHG’s weights to the SPDR ETFs range from 3.56% to 14.48%. USHG can offer investors a similar risk profile to the traditional 60% stocks/40% bonds portfolio mix with the potential for better returns. USHG charges 0.55% per year, or $55 on a $10,000 investment.

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