With the S&P 500 having posted its best annual performance in more than two decades last year, it’s reasonable to expect returns will be more subdued this year. Plus, risks could escalate in the back half of the year as the presidential election draws closer.

The AGFiQ Dynamic Hedged U.S. Equity ETF (USHG) is a valid consideration for investors looking to hedge equity market risk, particularly for those that don’t want to allocate too heavily to bonds just to lower risk.

For instance, bonds may not provide the downside buffer investors are historically accustomed to with credit risk exposures. Hedge funds are expensive, have spotty track records over the last market cycle and come with high minimums. Shorting the market typically come with high carry costs, limited upside exposure and requires the ability to time the markets well.

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.

Downside Risks Remain

Nevertheless, downside risks remain and may be growing as we head deeper into the later stages of an economic cycle, along with rising global geopolitical and economic risks.

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 offers a unique multi-factor approach to mitigating equity risk.

USHG’s 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.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.