Diversification still matters. Perhaps even more so in a volatile climate and the Nationwide Maximum Diversification U.S. Core Equity ETF (NYSEArca: MXDU) is an avenue for adding variety and some protection to a portfolio.

The Maximum Diversification U.S. Core Equity ETF tries to reflect the performance of the TOBAM Maximum Diversification USA Index, a diversified rules-based index of large- and mid-sized U.S. companies that uses a quantitative model to weight companies to maximize the so-called Diversification Ratio of the index. The Diversification Ratio is a proprietary metric based on the volatility of each index constituent and its correlation to other constituents.

While markets are in a period of constrained strength fundamentally, investors are less likely to focus on that than in the past. Investors should now focus on more downside hedging, especially given the late bull cycle the markets are currently in.

Diversification Can Still Work

MXDU offers investors a quality approach with positive social and governance leanings that can generate better long-term returns.

The TOBAM Diversification Ratio used by MXDU screens against a socially responsible investment exclusion blacklist to exclude those involved with the production or sale of unconventional weapons, production of tobacco, production of coal or coal-based energy, serious or systematic human rights violations, severe environmental damage, gross corruption, or other particularly serious violation of ethical norms. The index then analyzes the volatility and correlation of each component and weights them to maximize the Diversification Ratio.

The underlying screens against a socially responsible investment exclusion blacklist to exclude those involved with the production or sale of unconventional weapons, production of tobacco, production of coal or coal-based energy, serious or systematic human rights violations, severe environmental damage, gross corruption, or other particularly serious violation of ethical norms. The in.dex then analyzes the volatility and correlation of each component and weights them to maximize the Diversification Ratio.

The Nationwide Maximum Diversification U.S. Core Equity ETF provides a balance core holding that seeks to curtail idiosyncratic risks, resulting in better long-term performance compared to that of market cap-weighted strategies.

Bringing risk-management to a volatile market, Nationwide ETFs seek to protect on the downside while still maintaining upside potential resulting in better risk-adjusted performance.

MXDU is in rally mode with a gain of 14.60% over the past month, a performance that’s crushing the S&P 500 by a margin of better than 6-1.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.