Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

How To Hedge For A Market Correction With ETFs

Wed, Mar 14, 9:15 AM ET, by Michael Johnston

Are we near the top or did the bull train just leave the station? Fundamental news has been bolstering equity markets higher since the start of 2012, although many investors are fearful that if they jump in now, the next market correction may very well wipe out all of their gains and then some. Luckily, thanks to the evolution of the ETF industry, investors who wish to dip their toes in the water without going “all in” so to speak have a number of valuable instruments at their disposal [see also Brent Crude vs. WTI: The Best Performing Commodity].

Some sophisticated investors may wish to employ options trading strategies to hedge for downside risk in their positions, while others commonly opt for safe haven exposure through gold or bonds. Newcomer QuantShares offers mainstream investors a creative approach to hedging for a potential correction while also easing the burden of market timing. The Boston-based issuer offers a suite of market neutral ETFs that are worth a closer look for anyone who wishes to lower their portfolio’s overall volatility through the purchase of a single ticker [see Special Report: Alternative ETPs In Focus].

The QuantShares ETFs profiled below are designed as hedging vehicles that can smooth out volatility by taking advantage of fluctuations in the market. Each of the products is market and sector neutral; these ETFs hold equal weighted, dollar neutral long/short positions, which means they can deliver positive returns in both bull and bear markets [see also Three Years Later: Best Performing ETFs Since Markets Bottomed Out].

U.S. Market Neutral Anti-Beta Fund (BTAL)

Click To Enlarge

This ETF holds long positions in the lowest beta stocks and short positions in the highest beta stocks. The thesis behind this strategy is that if uncertainty arises, lower beta securities will tend to outperform “riskier”, higher beta stocks. This approach may appeal to investors who anticipate an increase in volatility, but wish to avoid taking an outright short position in the market.

Consider the adjacent chart which shows the returns of the S&P 500 Index (red line) versus BTAL’s underlying index, the Dow Jones U.S. Thematic Market Neutral Anti-beta Total Return Index (blue line) [graph was compiled using daily returns data from Dow Jones Indexes]. Notice how during the stock market slump in 2008 the Anti-Beta Index was able to deliver massive gains, which certainly could have helped to offset losses in long-only equity portfolios.

U.S. Market Neutral Quality Fund (QLT)

This ETF undertakes the market neutral approach from a slightly different perspective. QLT buys stocks that have a combination of high return on equity and low debt to equity, while at the same time shorting securities with low or negative return on equity and high debt to equity ratios. The appeal of QLT is quite simple: quality stocks, based on fundamental criteria, have a tendency to outperform lower quality securities when volatility in the market increase since investors are scrambling for “safer” exposure [see QLT Fact Sheet].

U.S. Market Neutral Anti-Momentum Fund (NOMO)

NOMO delivers market neutral exposure by taking on a more technical approach in the security selection process. This ETF holds long positions in stocks that are deemed to exhibit low momentum characteristics, while simultaneously shorting the high momentum securities. The underlying portfolio is re-balanced monthly and could provide investors investors with a creative means of taking advantage of declines int he market. Additionally, many investors have unintended momentum biases which can be reduced by making an allocation to NOMO [see ETFs To Smooth Volatility: Looking At Some Long/Short Options].

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.


SDI Glossary: "Beta" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "Option" Definition
SDI Glossary: "Short" Definition
SDI Glossary: "TA" Definition
This Article's Word Cloud:   Anti   BTAL   Best   ETFs   Fund   Index   Jones   Market   NOMO   Neutral   This   advantage   also   approach   beta   creative   deliver   equity   exposure   gains   have   high   higher   holds   increase   investors   long   lower   many   market   means   momentum   neutral   positions   return   returns   securities   short   shorting   since   stocks   taking   that   their   time   underlying   volatility   which   while   wish

| More

Citigroup Achieves #106 Analyst Rank, Surpassing Avery Dennison
Fri, Aug 22, 12:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

GLD: ETF Inflow Alert
Fri, Aug 22, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: GLD Exchange traded funds (ETFs) trade just like stocks, but ...

iShares Russell Mid-Cap Growth ETF Experiences Big Inflow
Fri, Aug 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IWP, NFLX, KR, TSLA Exchange traded funds (ETFs) trade just ...

Vanguard High Dividend Yield ETF Experiences Big Inflow
Fri, Aug 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VYM, PEP, WMT, MCD Exchange traded funds (ETFs) trade just ...

FXN, VLO, HES, MRO: ETF Outflow Alert
Fri, Aug 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: FXN, VLO, HES, MRO Exchange traded funds (ETFs) trade just ...

14.0% of VIS Holdings Seeing Recent Insider Buys
Fri, Aug 22, 10:14 AM ET, by ETF Channel

A look at the weighted underlying holdings of the Vanguard Industrials ETF (VIS) shows an ...

ABBV a Top 25 Dividend Giant With $5.57B Held By ETFs
Fri, Aug 22, 8:24 AM ET, by ETF Channel

AbbVie Inc. (ABBV) has been named as a Top 25 ''Dividend Giant'' by ETF Channel, ...

China Consumer (CHIQ) Shares Cross Below 200 DMA
Thu, Aug 21, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the China Consumer ETF (CHIQ) crossed below their 200 ...

iShares Global Timber & Forestry (WOOD) Shares Cross Above 200 DMA
Thu, Aug 21, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares Global Timber & Forestry ETF (WOOD) crossed ...

iShares Gold Trust Breaks Below 200-Day Moving Average - Notable for IAU
Thu, Aug 21, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares Gold Trust ETF (IAU) crossed below their ...

ERUS Makes Bullish Cross Above Critical Moving Average
Thu, Aug 21, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the iShares MSCI Russia Capped ETF (ERUS) crossed above ...

REW Crowded With Sellers
Thu, Aug 21, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the Proshares UltraShort Technology ETF (REW) entered into oversold ...

XL Group Takes Over #122 Spot From TE Connectivity
Thu, Aug 21, 12:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

GLD Makes Notable Cross Below Critical Moving Average
Thu, Aug 21, 11:14 AM ET, by ETF Channel

In trading on Thursday, shares of the SPDR Gold Shares ETF (GLD) crossed below their ...

IYR, AMT, PLD, HCN: Large Outflows Detected at ETF
Thu, Aug 21, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IYR, AMT, PLD, HCN Exchange traded funds (ETFs) trade just ...

FXZ, TMST, CLF, WLK: Large Outflows Detected at ETF
Thu, Aug 21, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: FXZ, TMST, CLF, WLK Exchange traded funds (ETFs) trade just ...

VIS, LMT, EMR, FDX: ETF Inflow Alert
Thu, Aug 21, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: VIS, LMT, EMR, FDX Exchange traded funds (ETFs) trade just ...

IYW, CSCO, HPQ, YHOO: ETF Outflow Alert
Thu, Aug 21, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IYW, CSCO, HPQ, YHOO Exchange traded funds (ETFs) trade just ...

RSP, MNST, THC, VRTX: Large Inflows Detected at ETF
Thu, Aug 21, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: RSP, MNST, THC, VRTX Exchange traded funds (ETFs) trade just ...

11.4% of FXN Holdings Seeing Recent Insider Buys
Thu, Aug 21, 9:34 AM ET, by ETF Channel

A look at the weighted underlying holdings of the First Trust Energy AlphaDEX Fund (FXN) ...

T Rowe Price Group a Top Socially Responsible Dividend Stock With 2.2% Yield (TROW)
Thu, Aug 21, 9:24 AM ET, by ETF Channel

T Rowe Price Group Inc. (TROW) has been named a Top Socially Responsible Dividend Stock ...

VGSH Crosses Below Key Moving Average Level
Wed, Aug 20, 4:14 PM ET, by ETF Channel

In trading on Wednesday, shares of the Vanguard Short-Term Government Bond ETF (VGSH) crossed below ...

ISHG Crowded With Sellers
Wed, Aug 20, 3:54 PM ET, by ETF Channel

In trading on Wednesday, shares of the iShares 1-3 Year International Treasury Bond ETF (ISHG) ...

DRV Crowded With Sellers
Wed, Aug 20, 3:54 PM ET, by ETF Channel

In trading on Wednesday, shares of the Daily Real Estate Bear 3x Shares ETF (DRV) ...

PPLT Crowded With Sellers
Wed, Aug 20, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the ETFS Physical Platinum Shares ETF (PPLT) entered into ...

Japanese Yen Trust (FXY) Enters Oversold Territory
Wed, Aug 20, 11:14 AM ET, by ETF Channel

In trading on Wednesday, shares of the Japanese Yen Trust ETF (FXY) entered into oversold ...

iShares Core S&P Total U.S. Stock Market ETF Experiences Big Outflow
Wed, Aug 20, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: ITOT, UPS, SBUX, SPG Exchange traded funds (ETFs) trade just ...

VAW, PX, ECL, PPG: Large Outflows Detected at ETF
Wed, Aug 20, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: VAW, PX, ECL, PPG Exchange traded funds (ETFs) trade just ...

IWX, EMC, MS, MET: Large Outflows Detected at ETF
Wed, Aug 20, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: IWX, EMC, MS, MET Exchange traded funds (ETFs) trade just ...

PIZ, CFR, DOL, CPG: Large Outflows Detected at ETF
Wed, Aug 20, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: PIZ, CFR, DOL, CPG Exchange traded funds (ETFs) trade just ...

FEP, NXPI, ICLR, AER: Large Outflows Detected at ETF
Wed, Aug 20, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: FEP, NXPI, ICLR, AER Exchange traded funds (ETFs) trade just ...

Why Genuine Parts is a Top 25 SAFE Dividend Stock (GPC)
Wed, Aug 20, 9:14 AM ET, by ETF Channel

Genuine Parts Co. (GPC) has been named to the Dividend Channel ''S.A.F.E. ...

UDN Crosses Critical Technical Indicator
Tue, Aug 19, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares DB US Dollar Index Bearish Fund ETF ...

Carmax Takes Over #109 Spot From Pitney Bowes
Tue, Aug 19, 1:44 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

Technology Select Sector SPDR Fund Experiences Big Inflow
Tue, Aug 19, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: XLK, AAPL, MSFT, GOOGL Exchange traded funds (ETFs) trade just ...

VUG, GOOG, FB, AXP: ETF Inflow Alert
Tue, Aug 19, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VUG, GOOG, FB, AXP Exchange traded funds (ETFs) trade just ...

EWP: Large Inflows Detected at ETF
Tue, Aug 19, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: EWP Exchange traded funds (ETFs) trade just like stocks, but ...

JNK: Large Inflows Detected at ETF
Tue, Aug 19, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: JNK Exchange traded funds (ETFs) trade just like stocks, but ...

Vanguard Value ETF -- Insider Buying Index Registering 12.8%
Tue, Aug 19, 9:44 AM ET, by ETF Channel

A look at the weighted underlying holdings of the Vanguard Value ETF (VTV) shows an ...

13.9% of FDL Holdings Seeing Recent Insider Buys
Tue, Aug 19, 9:34 AM ET, by ETF Channel

A look at the weighted underlying holdings of the First Trust Morningstar Dividend Leaders Index ...

MMM a Top Ranked SAFE Dividend Stock With 2.4% Yield (MMM)
Tue, Aug 19, 8:14 AM ET, by ETF Channel

3M Co (MMM) has been named to the Dividend Channel ''S.A.F.E. 25'' list, signifying a ...

Norfolk Southern a Top Socially Responsible Dividend Stock With 2.2% Yield (NSC)
Tue, Aug 19, 8:14 AM ET, by ETF Channel

Norfolk Southern Corp. (NSC) has been named a Top Socially Responsible Dividend Stock by Dividend ...

TNA Crosses Above Key Moving Average Level
Mon, Aug 18, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the Daily Small Cap Bull 3x Shares ETF (TNA) ...

FIW Crosses Above Key Moving Average Level
Mon, Aug 18, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the First Trust ISE Water Index Fund ETF (FIW) ...

Western Digital Takes Over #60 Spot From Monsanto
Mon, Aug 18, 12:24 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

IVE, XOM, CVX, BAC: Large Inflows Detected at ETF
Mon, Aug 18, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IVE, XOM, CVX, BAC Exchange traded funds (ETFs) trade just ...

EWW: Large Inflows Detected at ETF
Mon, Aug 18, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: EWW Exchange traded funds (ETFs) trade just like stocks, but ...

BSJG: Large Outflows Detected at ETF
Mon, Aug 18, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: BSJG Exchange traded funds (ETFs) trade just like stocks, but ...

IYE, SLB, COP, EOG: Large Outflows Detected at ETF
Mon, Aug 18, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: IYE, SLB, COP, EOG Exchange traded funds (ETFs) trade just ...

10.3% of XBI Holdings Seeing Recent Insider Buys
Mon, Aug 18, 10:34 AM ET, by ETF Channel

A look at the weighted underlying holdings of the SPDR S&P Biotech ETF (XBI) shows ...

Related videos | all videos »
  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

How To Hedge For A Market Correction With ETFs | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.