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Hedge Portfolio With These ETFs Ahead of Trump-Xi G-20 Meet

Now that G-20 meet has started in Buenos Aires, Argentina today, all eyes would be on the dinner meeting scheduled on Saturday between President Trump and Chinese President Xi Jingping. Many are betting on the fact that Trump and Xi are interested in negotiating on trade despite recent threats from Trump to intensify it.

Still, the broader market does not expect any concrete resolution. Height Capital Markets Vice President Clayton Allen expects “the best possible result this weekend will be a temporary pause in tariffs, including the remaining $267 billion in Chinese imports.”

Trump has warned of increasing the existing 10% tariff on $250 billion of imported Chinese goods to 25% in January if the dispute does not end. There is the risk of new tariffs on an additional $267 billion of goods not presently subject to tariffs. Allen forecasts that the new tariffs will be administered step by step instead of all at once if Saturday’s meeting between Xi and Trump fails to deliver a positive outcome.

"Some people are going to be hedging positions to protect themselves from the downside if there is no positive conclusion from those talks," per Chris Larkin, svp of trading at E*Trade. "People are making strategic decisions for a short period of time using the options market."

Though several sectors and areas that are highly-tied to the U.S.-China trade war, like technology, are oversold, any sour outcome of the Trump-Xi G-20 Meet may reignite the sell-off. Against this uncertain scenario, it is better that investors 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.

Nationwide Risk-Based U.S. Equity ETF (RBUS)

This ETF follows the R Risk-Based US Index, which is s a rules-based, equal risk-weighted index designed to provide exposure to U.S. listed large-cap companies with lower volatility, reduced maximum drawdown, and an improved Sharpe ratio as compared to traditional, market capitalization weighted approaches. RBUS hit the market in September 2017 and has accumulated $112.3 million in its asset base. It charges 30 bps in annual fees.

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. The fund has accumulated $32.3 million in its asset base. Expense ratio comes in at 0.65% (read: 5 Solid High Dividend Value ETFs & Stocks to Buy Now).

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 $403.8 million in its asset base. It charges 35 bps in fees per year (read: A New ETF in Market Promises Diversification).    

Aptus Behavioral Momentum ETF (BEMO)

The underlying Aptus Behavioral Momentum Index tracks the performance of 25 large US-traded equity securities. It quantitatively ranks large U.S. companies based on a combination of momentum and irrational investor behavior, and seeks to gain exposure to only the solid ranked stocks. The $75.5-million fund charges 79 bps in fees.

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 fund has accumulated $25.0 million in its asset base and charges 39 bps in fees per year from investors.

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APTUS BEHAV MO (BEMO): ETF Research Reports
CAMBRIA-VAL&MOM (VAMO): ETF Research Reports
NATWD-R-B US EQ (RBUS): ETF Research Reports
PWRSH-SP5 DHP (PHDG): ETF Research Reports
DELS-SP5 MG RSK (DMRL): ETF Research Reports
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