While it may seem contrary to popular belief, exchange traded fund investors should consider investment options that could limit risk exposure during bullish conditions in case the markets suddenly sour.
For example, investors may look to multi-factor ETFs like the Hartford Multifactor Low Volatility US Equity ETF (BATS: LVUS) and Hartford Multifactor Low Volatility International Equity ETF (BATS: LVIN) that provide exposure to U.S. and global equities, respectively, and seek to reduce volatility as a way to help limit drawdowns and still participate in any upside potential.
“Investors should look at a low-volatility strategy in advance of when markets are choppy,” Darek Wojnar, Head of ETFs at Hartford Funds, told ETF Trends in a call. “Investors should prepare for riding that lag when markets are bullish.”
Given the potential risks we face today, such as a rising interest rate environment, political uncertainty and geopolitical tensions, equity investors may encounter sudden risk-on events that could upend the bull market rally that has extended into its ninth year. Consequently, investors who still want equity market exposure but are wary of a sudden plunge may consider multi-factor, low-volatility ETFs to help smooth out a potentially bumpy ride.
“We think these type of solutions are relevant going forward,” Wojnar added.