Many advisors expect market volatility to increase soon, creating uncertainty around how to capture gains while preparing for a recession.
Advisors understand that even though the U.S. has not yet fallen into a recession, the economy is not out of the woods. The current environment is ideal for helping clients participate in the equity rally while simultaneously preparing portfolios for a recession.
“The recent stock market volatility has made some advisors nervous,” Todd Rosenbluth, head of research at VettaFi, said. “An alternatively weighted equity ETF might be more appropriate for clients heading into 2024 than one tied to the cap-weighted S&P 500.”
Using Multifactor ETFs to Prepare for a Recession
Multifactor ETFs may be a solution for advisors looking to safeguard gains while maintaining upside potential.
By allocating to a strategy that targets value stocks exhibiting lower volatility, investors can limit some of their downside risks and maintain desired equity exposure during chopping markets. Multifactor ETFs aim to target desired return-enhancing factors and reduce exposure to unrewarded risk exposures.
A multifactor ETF that allows investors to limit risk while still participating in the U.S. equity market is the Hartford Multifactor US Equity ETF (ROUS). ROUS aims to provide a more balanced exposure to U.S. large-caps while also dampening volatility compared to benchmarks.
The ETF seeks to outperform traditional cap-weighted indexes and reduce volatility by 15% over a full market cycle.
To maintain balanced exposure, ROUS notably shifts its weight down the cap spectrum compared to top-heavy benchmarks. The fund holds 398 securities as of October 18, with 12.6% of the fund’s assets in the top 10 names.
For more news, information, and analysis, visit the Multifactor Channel.
Investing involves risk, including the possible loss of principal.
This article was prepared as part of Hartford Funds paid sponsorship with VettaFi. Hartford Funds is not affiliated with VettaFi and was not involved in drafting this article. The opinions and forecasts expressed are solely those of VettaFi. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, a recommendation for any product or as investment advice.