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10 Alternative ETFs for a Historically Volatile Month of the Year

This article was originally published on ETFTrends.com.

September has historically been the most volatile month of the year for stocks. Equity investors who are wary of any further swings can look to alternative ETF strategies to limit the potential risks.

According to data from "Stock Trader's Almanac," the month of September has been the worst performing month of the year for the Dow Jones Industrial Average and the S&P 500 since 1950, the worst for the Nasdaq since 1971, and the most difficult for the Russell 1000 and Russell 2000 since 1979, CNBC reports.

Furthermore, in a note to clients, Andrew Thrasher also warned of the seasonal downturn and said September "has historically seen more weakness in mid-term election years than non-mid-term years."

So far, U.S. stocks have experienced their longest bull run since World War II and more-or-less brushed off an escalating global trade war and rising geopolitical risks.

Nevertheless, risks continue to mount. For instance, the Trump administration has threatened another $200 billion in U.S. tariffs on Chinese goods, and the upcoming U.S. midterm elections could throw in another round of political risk. The Federal Reserve is also expected to hike rates this month on September 26 and provide guidance on its direction for a potential December hike.

"Now that the Dog Days of Summer are officially over, we suspect a new narrative may take prominence in the financial markets," Jim Paulsen of the Leuthold Group said in a note. "Rather than Presidential tweets, mid-term elections, trade wars, and impeachment proceedings dominating Wall Street discussions, expect the focus to return to the economy. A set of reports hinting at slower economic growth, an inflation spurt, or perhaps a little of both could quickly bring a new era of failing fundamentals."

Best Alternative ETF Strategies

Consequently, investors who are seeking a hedge against further weakness in the markets may turn to alternative ETF strategies. For instance, those who want to hedge against risk in the Dow Jones Industrial Average utilized inverse ETFs to bolster their long equities positions. The ProShares Short Dow 30 ETF (DOG) tries to reflect the -100% daily performance of the Dow Jones Industrial Average. For the more aggressive traders, the ProShares UltraShort Dow 30 ETF (DXD) takes the -200% of the Dow Jones and the ProShares UltraPro Short Dow 30 (SDOW) reflects the -300% of the Dow.

For those who were wary of a potential pullback in the S&P 500 index, there are a number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off a weakening S&P 500. The ProShares Short S&P500 (SH) takes a simple inverse or -100% daily performance of the S&P 500 index. Alternatively, for the more aggressive trader, leveraged options include the ProShares UltraShort S&P500 ETF (SDS) , which tries to reflect the -2x or -200% daily performance of the S&P 500, the Direxion Daily S&P 500 Bear 3x Shares (SPXS) , which takes the -3x or -300% daily performance of the S&P 500, and ProShares UltraPro Short S&P 500 ETF (SPXU) , which also takes the -300% daily performance of the S&P 500.

Lastly, investors also hedged against a dipping Nasdaq through bearish options as well. For instance, the ProShares Short QQQ ETF (PSQ) takes the inverse or -100% daily performance of the Nasdaq-100 Index. For the aggressive trader, the ProShares UltraShort QQQ ETF (QID) tracks the double inverse or -200% performance of the Nasdaq-100, and the ProShares UltraPro Short QQQ ETF (SQQQ) reflects the triple inverse or -300% of the Nasdaq-100.

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