Trump’s protectionist stance on trade has kept investors on their toes, leading to sluggish trading on Wall Street. This is especially true, as a series of tariff talks between the United States and its other major allies are intensifying fears of a trade war and could even trigger a global recession.

In fact, the major indices saw their biggest one-day drop in many weeks on Jun 25 and the Dow bearishly closed below its 200-day moving average – a closely watched level – for the first time in two years. Meanwhile, the CBOE Volatility index, also known as fear gauge, soared 25% yesterday.

Notwithstanding the political ills, the economic fundamentals remain sound given the raft of upbeat data, which shows that the economy is hot with unemployment dropping to 3.8% — the lowest level since 2000; consumer spending and confidence on the rise, and recovery in retail sales (read: Fund Managers Bullish on America in June: 6 ETFs to Profit).

Further, a massive $1.5-trillion tax cut will create an economic surge, boosting job growth and reflation trade. It will further accelerate earnings, leading to increased dividend and buyback activities. Additionally, the tax repatriation will allow companies to bring offshore cash back home, paving the way for increased mergers and acquisitions. A combination of all these factors bodes well for the stock market.

In order to make the most of the encouraging trend amid volatility, investors should apply some hedge techniques to their equity portfolio. While there are a number of ways to do this, we have highlighted five volatility hedged ETFs that could prove beneficial amid market turbulence. Investors should note that these funds have the potential to stand out and might outperform the simple vanilla funds in case of rising volatility.

How to Play

DeltaShares S&P 500 Managed Risk ETF DMRL

This ETF seeks to track the S&P 500 Managed Risk 2.0 Index, which is designed to simulate a downside-protected portfolio by utilizing a framework that includes targeted volatility and a synthetic option overlay to hedge the downside risk of the portfolio. DMRL has accumulated nearly $439 million in its asset base and trades in a light volume of 14,000 shares. It charges 35 bps in fees per year (read: 5 Sector ETFs Most Exposed to Trade Tensions).

Nationwide Risk-Based U.S. Equity ETF RBUS

This ETF follows the R Risk-Based US Index and employs a risk-based strategy that seeks to provide upside potential while protecting against losses stemming from volatility. It holds well-diversified 249 stocks in its basket, with none of the securities accounting for more than 1.7% share. RBUS has recently debuted in the space and accumulated $117.2 million since last September. It charges 30 bps in annual fees and trades in a thin volume of 9,000 shares a day on average.

Cambria Value and Momentum ETF VAMO

This is an actively managed ETF providing exposure to a portfolio of companies that offer strong characteristics by focusing on all three factors — value, momentum, and tactical hedging — with the added benefit of lower volatility and protection from market downturns. It results in a basket of 102 securities, with none holding more than 1.8% of the assets. The fund has accumulated $37.1 million in its asset base while trading in average daily volume of 16,000 shares. Expense ratio comes in at 0.59%.

Invesco S&P 500 Downside Hedged ETF PHDG

This actively managed fund seeks to deliver positive returns in rising or falling markets that are uncorrelated to broad equity or fixed-income market returns. It tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The S&P 500 Total Return Index represents the equity component while the S&P 500 VIX Short-Term Futures Index represents the volatility component of the index. The non-equity (volatility + cash) portion makes up for one-fourth of the portfolio while the rest goes to equity. The fund has accumulated $25.1 million in its asset base and charges 39 bps in fees per year from investors. Volume is light exchanging 9,000 shares a day on average (read: Inverse ETFs Surge as Trade War Fears Escalate).


This is an ETN option tracking the S&P 500 Dynamic VEQTOR Index. VQT uses volatility futures contracts directly to hedge volatility. It increases allocation to the equity component as measured by the S&P 500 Total Return Index in times of low volatility. On the other hand, it increases volatility exposure as measured by the S&P 500 VIX Futures Total Return index and allocates entirely into cash if the index slumps 2% or more in the preceding five days. In this manner, the note manages to keep a check on volatility. The product has amassed $24.6 million in AUM and charges higher 95 bps in annual fees. The ETN sees paltry average daily volume of 5,000 shares.

Bottom Line

Investors can definitely shield their portfolio against volatility with the help of the abovementioned products. These provide dynamic exposure according to the level of market volatility. These are least affected by any market turmoil and could prove to be great choices when it comes to offering protection against market downturn.

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CAMBRIA-VAL&MOM (VAMO): ETF Research Reports

BARCLY-SP VEQTR (VQT): ETF Research Reports

PWRSH-SP5 DHP (PHDG): ETF Research Reports

DELS-SP5 MG RSK (DMRL): ETF Research Reports

NATWD-R-B US EQ (RBUS): ETF Research Reports

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