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4 Hedge Fund ETFs to Counter Geopolitics & Fed Fears

Sanghamitra Saha

The broader market has been a little off-mood lately. The S&P 500, the Dow Jones Industrial Average and the Nasdaq have lost their post-election (Donald Trump’s win) enthusiasm.  Along with overvaluation concerns, doubts over the materialization of the Trump administration’s promised deregulation and tax cut proposals are being seen as the key culprits.

Developments in the oil patch are also unpredictable with surging U.S. output. If this was not enough, U.S. military strike on a Syrian airbase, deployment of a strike group by the U.S. navy to Korean Peninsula, and a series of terrorist attacks in Europe flared up geopolitical concerns (read: 3 Low Volatility ETFs to Buy if Global Tensions Flare Up).

How Have Geopolitics Take Center Stage?

The missile strikes were the aftermath of the Syrian military’s poison gas attack to kill dozens of civilians. However, the air strike in Syria has fallen upon relations between Moscow and Washington as Russia is an ally of the Syrian president Bashar al-Assad.

Russia has already criticized the U.S. air strike against Syria as "aggression against a sovereign state in violation of the norms of international law." So, now the risk of a U.S.-Russia clash has increased. Not only Russia, Iran – another supporter of Syria government – boosted military support for the Assad regime. 

Now comes North Korea, which has been launching ballistic missiles lately to show its antagonism over annual military drills between U.S. and South Korea. North Korea views these drills as trials before invasion.

North Korea’s recent missile launches on test purpose triggered concerns over safety in peripheral countries. Washington now looks extremely proactive in tackling North Korea’s nuclear threat by launching a navy strike group.

Other Economic Tensions

Meanwhile, job data for the month of March came in weaker than expected. U.S. employers added 98,000 new jobs in March, less than the downwardly revised 219,000 in February and market expectations of 180,000. The figure marked the lowest job gains in 10 months.

The Fed has also hinted at deleveraging the balance sheet this year. So, a significant amount of uncertainty is brewing up in the market. Overvaluation concerns also played a role in flaring up volatility(read: 5 Alternative ETFs to Avoid 'Cognitive Dissonance' in Market).

Risk quotient in the market elevated with the CBOE Volatility Index trading at about 13 compared with 11 at the start of March. iPath S&P 500 VIX ST Futures ETN VXX was up about 7.3% in the last two days (as on April 10, 2017).

These worries may keep the stock market volatile, and investors may find some protection in alternative ETFs. Among several alternative products, 'macro' hedge funds are likely to be on investors ’radar.

Inside Macro Hedge Fund’s Historical Performance

Macro funds look to follow macroeconomic trends using currencies, bonds, rates and stock futures. These products beat the broader industry during the financial crisis and amassed tens of billions of dollars between 2010 and 2012. But these shed most of those assets between 2013 and 2014 and some in 2016. However, these products got their mojo back to some extent in recent sessions.

Below we highlight four hedge fund ETFs that beat the broader market ETFs like SPY, DIA and QQQ in the last five days (as of April 10, 2017)

Cambria Value and Momentum ETF VAMO

This is an active ETF which uses a quantitative approach to actively manage a portfolio of U.S. equities (read: Are Hedge Fund ETFs Good Bets for Only Uncertain Times?).

SPDR SSGA Multi-Asset Real Return ETF RLY

The ETF looks to achieve real return consisting of capital appreciation & current income. The fund seeks to track the performance of a market index; exchange traded commodity trusts & ETNs (read: 5 Alternative ETFs to Beat Market Slump).

PowerShares DWA Tactical Multi-Asset Income Portfolio DWIN

It is a smart beta ETF tracking the Dorsey Wright Multi-Asset Income Index. It follows a fund-of-funds approach. It rotates within seven different income-producing market segments based on relative strength and current yield criteria.

Merger ETF MRGR

The underlying index of the fund provides exposure to a global merger arbitrage strategy, which seeks to reflect the spread between the price at which the stock of a company trades after the proposed acquisition of such a target is announced and the value that the acquiring company has proposed to pay for the stock of the target. The index takes long positions in target securities.

Investors should note that “cross-border M&A had its strongest start since 2007, driving first-quarter global volumes up 7%.” This corporate behavior puts this merger fund in focus (read: 5 Hot ETFs to Rescue if Trump Trade Wavers).

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IPATH-SP5 VX ST (VXX): ETF Research Reports
 
CAMBRIA-VAL&MOM (VAMO): ETF Research Reports
 
SPDR-SSGA MA RR (RLY): ETF Research Reports
 
PRO-MERGER (MRGR): ETF Research Reports
 
PWRSH-DWA TMIP (DWIN): ETF Research Reports
 
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