How To Hedge Stock Volatility With ETFs

The global stock market is caught in a vicious circle of uncertainty arising from rising interest rates, intensifying trade tension between the United States and its allies, ongoing troubles in emerging markets, and mid-term election in November. Additionally, fresh threats of Saudi turmoil added to the chaos as the disappearance of Washington Post columnist Jamal Khashoggi resulted in a fear of U.S. sanctions- another major blow to the global stock market.

Nonetheless, the economic fundamentals remain sound given the raft of upbeat data, which shows that the economy is hot with unemployment dropping to 3.7% for the first time in nearly 50 years, consumer spending and confidence on the rise, and recovery in retail sales.

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 – Free Report)

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 $419.4 million in its asset base and trades in a light volume of 9,000 shares. It charges 35 bps in fees per year.