ETF Tools to Navigate Challenging Market Conditions

In a volatile market conditions, investors may turn to ETF strategies that can help diminish some of the potential volatility and still ride the wave higher.

“It has never been easy to answer these questions with certainty, and now is no exception. But today investors may be better equipped with new tools to help them navigate these challenging questions and invest wisely,” Bill Hoyt, head of research/portfolio management at Hartford Funds, said on CNBC.

“With a long-term investment horizon, staying invested is the most important thing. Seeking ETFs that manage some of the risks may give you the confidence to do so,” he added.

For example, investors may look to multi-factor ETFs like the Hartford Multifactor Low Volatility US Equity ETF (BATS: LVUS) and Hartford Multifactor Low Volatility International Equity ETF (BATS: LVIN) that provide exposure to U.S. and global equities, respectively, and seek to reduce volatility as a way to help limit drawdowns and still participate in any upside potential.

Hoyt pointed out that traditional safety bets like fixed-income assets are not as risk-free as they use to be after a three-decade long bull run, with the Federal Reserve beginning its interest rate hike cycle.

Risk of steeper pullbacks

Meanwhile, big names that have outperformed are now making up a large portion of investors’ portfolios, especially among those tracking passive index-based strategies. With these companies leading the charge toward record highs, investors are more at risk of steeper pullbacks.

“The good news is that investors have access to a newer breed of investment strategies that were designed with these risks in mind,” Hoyt said.

Specifically, Hoyt pointed out that certain single-factor ETFs, such as low-volatility strategies, seek to deliver exposure to equities with historically lower risk.