“Risk adjusted returns – we talk a lot of about; very hard for end clients to relate to it, but when they start feeling volatility they’re going to hope that their portfolios has things in it that really helps them with that. The exciting thing is that ETFs can now solve that problem for you,” Dahya added.
Along with alternative hedging strategies like JPHF, the rising group of smart beta or factor-based index ETFs also seek to limit risks and improve market exposures.
For instance, factor-specific smart beta ETF plays like the JPMorgan Diversified Return US Equity ETF (NYSEArca: JPUS) are backed by historical and academic data and have revealed long-term benefits when incorporated in a diversified investment portfolio.
These multi-factor ETFs provide advisors and investors direct access to hedge fund exposure inside an ETF vehicle. The underlying indices diversify risks that are less likely to be rewarded while overweighting areas that are more likely to produce positive results.
The underlying customized FTSE Russell indexing methodology selects components based on a diversified set of factor characteristics, such as relative valuation, price momentum and quality. The enhanced indexing process would allow the ETFs to exclude expensive, low quality companies with poor momentum, which could help the ETFs diminish drawdowns without sacrificing too much from any potential upside of a market recovery.