Sidestep Volatility With This Downside Hedging ETF | ETF Trends

The S&P 500 has been racked with volatility as of late with inflation fears and the ongoing pandemic adding to the market fluctuations, but there are exchange traded funds (ETFs) that can help ease the pain.

The CBOE Volatility Index is already up almost 75% to start 2022 with rising yields also adding to the wall of worry for investors. Additionally, other gauges of market sentiment like CNN’s Fear & Greed index show that investors are feeling anxious.

Short-term downward pressure for the S&P 500 could push through well into February, according to market experts. Less growth could make the Federal Reserve less hawkish with its plans to tighten monetary policy.

“The charts, as interpreted by Mark Sebastian, suggest that the S&P 500 could remain in the house of pain through early February,” said CNBC’s Jim Cramer.

The signs of a correction were already brewing over the past few weeks. What goes up must eventually come down, and traders have been quick to protect themselves with strategic hedging.

“It rallied relentlessly for the last three weeks,” Cramer said, which “is bad news for the stock market.”

“When it rises like this, it means that traders have been buying protection for themselves every time the VIX tries to back off,” Cramer explained. “Even on days when the market manages to rally, they don’t move to unwind those hedges, they buy more insurance.”

Sidestep Volatility With This Downside Hedging ETF 1

Strategic Volatility Protection

Investors can sidestep volatility with dynamic exposure to the markets that puts the responsibility on the fund manager to make the necessary moves to limit the downside. That can be had with an actively managed ETF such as the Invesco S&P 500® Downside Hedged ETF (PHDG).

The actively managed fund seeks to achieve positive total returns in rising or falling markets that are not directly correlated to broad equity or fixed income market returns. PHDG seeks to achieve its investment objective by using a quantitative, rules-based strategy that seeks to obtain returns that exceed the S&P 500 Dynamic VEQTOR Index.

The index provides investors with broad equity market exposure with an implied volatility hedge by dynamically allocating between equity, volatility, and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework.

When placed side-by-side with the S&P 500, the volatility protection is apparent. The index fell almost 8%, with the losses cut in half when it came to PHDG.PHDG Chart

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