Market volatility has returned in the fourth and final quarter, making risk management even more imperative and automatic with ETFs like the Global X Adaptive U.S. Risk Management ETF (ONOF).
The CBOE Volatility Index (VIX) has been reading higher the past few months, rising 16%. Inflation fears and rising yields have been dousing the major stock market indexes with heavy volatility, giving risk-averse investors ulcers along the way.
“The global marketplace has been plagued with much volatility of late,” an Investorplace article mentioned. “The headwinds emerging from the pandemic combined with increasing inflation have made [sic] been major concerns among investors.”
Dampening the Volatility Shock
ONOF can be especially useful given the current market environment due to its osmosis-like strategy. The ETF features a hedging component that automatically flips the risk-off switch by re-directing portfolio exposure to safe haven Treasury notes when equities head lower.
When equities are back in the green, ONOF investors are re-invested in equities to capture the upside. Then when stock markets go awry, it goes back to bonds like a market seesaw.
ONOF seeks investment results that correspond generally to the price and yield performance of the Adaptive Wealth Strategies U.S. Risk Management Index. The fund invests at least 80% of its total assets in the securities of the index or in investments that have economic characteristics that are substantially identical to the economic characteristics of such component securities, either individually or in the aggregate.
The index is designed to dynamically allocate between either 100% exposure to the Solactive GBS United States 500 Index TR or 100% exposure to a portfolio of U.S. Treasuries with 1–3 years remaining to maturity.
ONOF gives investors:
- Risk management: ONOF is designed to maintain exposure to the equity markets when the trending environment is positive and then move to a risk-off position when that trend reverses.
- A four signal approach: ONOF incorporates moving average, convergence/ divergence (MACD), drawdown, and volatility as indicators to shift between equity and fixed income exposure — each receiving an equal vote in the strategy.
- Less downside risk: The strategy seeks to mitigate the extent of drawdowns while remaining invested in equities as much as possible.
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