The Fed’s back and forth on cuts has been “the” story dominating markets so far this year. Over the last few weeks, however, the “multiple cut” narrative has lost steam. Now, increasingly, zero cuts is becoming a real possibility. That scenario would throw the stock market for a loop to some degree, which may speak to the appeal of a hedged equity ETF that could help mitigate losses.
See more: Retirement Looming? Get Active Equity Income in PAPI
One strategy that could play a role there, the Parametric Hedged Equity ETF (PHEQ), may appeal to curious investors. PHEQ takes an active approach to U.S. large cap stocks. It looks to create a laddered options strategy by purchasing and selling put options and selling call options.
It aims to limit downside risk after an initial 10% decline down to 30% over a one-year period. Taken together, that crafts a set of four defined outcome periods each year.
Qualities of PHEQ
The hedged equity ETF doesn’t lose its ability to benefit from positive returns in equities, either. The strategy has done reasonably well YTD, outperforming its ETF Database Category average. PHEQ has returned 2.3% in that time per Parametric’s data. It offers dividends on a quarterly basis, as well, and may incorporate tax loss harvesting.
That current income can offer a nice boost to portfolios amid a series of subtle but growing risks. Whether the failure of rate cuts to appear, or a collapse in tech valuations if AI fails to meet its promise, portfolios do face some notable risks this year. The former factor, particularly, could see the lagging impact of rate hikes finally bite if rates don’t come back down.
An active ETF that combines increasingly popular options strategies with that current income could provide a meaningful option to investors. PHEQ, then, merits a look for those investors looking for a bit more loss protection.
For more news, information, and analysis, visit The ETF Yield Channel.