The impending U.S. presidential election brings with it a host of investor concerns about short-term market impacts and heightened volatility. For those investors bracing for elevated short-term volatility or downside risk, the KraneShares Hedeye Hedged Equity Index ETF (KSPY) is worth consideration.
The bombardment of election news continues in the lead-up to the U.S. presidential election next week. On the November ballot is not just the presidency but also control of Congress, which shapes much of policy, including the ballooning national debt.
With an election that appears too close to call ahead of votes on Tuesday, according to recent polls, investors and markets are braced for volatility. Advisors and investors with an eye to potential downside risk and market volatility would do well to consider the fund.
Hedging Your Downside Risk and Volatility
KSPY seeks to track the Hedgeye Hedged Equity Index, providing exposure to the S&P 500. The strategy works to reduce volatility and hedge downside risk through its use of three different options strategies. Hedgeye manages the index and utilizes its proprietary risk management model that measures the trading range of the S&P 500 on a daily basis.
Image source: KraneShares
The fund also uses calls and puts on the S&P 500 Index and FLEX options that track the S&P 500 or similar indexes. Hedgeye’s proprietary Risk Range signals decide the options position within the fund. These signals measure volume, price, and volatility. From these, the strategy selects its options positions from one of three different strategies. These positions change as often as daily, depending on market movement. This includes what calls and puts to use as well as the strike prices to use.
The strategy seeks to hedge downside risk while giving up some upside potential in order to do so. Premiums earned from selling options are used to fund the fund’s options purchases. The premiums may also help compensate for some of the lost upside potential of the fund while providing income.
It carries an expense ratio of 0.69% with a fee waiver that expires August 1, 2025.
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