Coming off a spectacular showing in 2019, stocks are roaring into 2020, but that doesn’t mean investors should ignore downside protection. The AGFiQ U.S. Market Neutral Value Fund (NYSEArca: CHEP) can provide that buffer.
AGFiQ’s market neutral ETFs don’t focus on going long stock components that have historically exhibited minimal swings in volatility. Instead, the market neutral ETFs hold an equal dollar amount long and short within the various segments of the U.S. market, based on quantitative factors like momentum, size and quality.
The U.S. Market Neutral Momentum Fund leans toward stocks with the highest total return and shorts stocks with the lowest total return. Accordingly, if the momentum stocks are outperforming, the fund should reflect the outperformance.
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.
Market Neutral ETFs’ Hold
Unlike other “low volatility” or “low-beta” funds, the market neutral ETFs don’t focus on going long stock components that have historically exhibited minimal swings in volatility. Instead, the market neutral ETFs hold an equal dollar amount long and short within the various segments of the U.S. market, based on quantitative factors like momentum, size, and quality.
CHEP “provides consistent exposure to the value factor by investing in the underlying index which reconstitutes and rebalances monthly in equal dollar amounts in equally weighted long high value (cheap) positions and equally weighted short low value (expensive) positions within each sector,” according to the issuer.
CHEP has 200 long positions and 200 short positions to deliver 100% net long exposure. Investors may find this market-neutral strategy an attractive way to diversify a portfolio because it could be expected to have a very low beta to the equity market and very low volatility.
Bottom line: CHEP could be a winning way to protect against downside in large-cap stocks, particularly if trade tensions or election jitters flare up this year.
For more on alternative strategies, visit our Alternatives Channel.
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.
