Some ETFs can capture upside and some can prevent downside. The Global X Adaptive U.S. Risk Management ETF (ONOF) does both.

ONOF can be especially useful given the current market environment. Inflation fears have been roiling the markets the past month. ONOF can help with the volatility. The ETF features a hedging component that automatically flips exposure to safe haven Treasury notes when equities head lower.

When equities flip back to the green, ONOF investors are re-invested in equities to capture any upside. Then back again when equities go awry.

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.

ONOF Chart

Risk Management Essentials

ONOF spares investors the trouble of hedging assets in different positions. Last year, investors and traders witnessed the need for proper risk management techniques.

Risk management helps cut down losses,” an Investopedia article said. “It can also help protect traders’ accounts from losing all of its money. The risk occurs when traders suffer losses. If the risk can be managed, traders can open themselves up to making money in the market.”

“It is an essential but often overlooked prerequisite to successful active trading,” the article added. “After all, a trader who has generated substantial profits can lose it all in just one or two bad trades without a proper risk management strategy.”

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