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ETFs to Help Hedge Market Volatility


While some market strategists anticipate equities to end the second half even higher, stocks and exchange traded funds could be in for a bumpy road in the meantime.

“The recent volatility in stocks and bonds will likely be with us for the foreseeable future (at least a few months),” strategists Stuart Freeman and Scott Wren of Wells Fargo said in a note, according to CNBC. “But we continue to believe any pullback is an opportunity to add to stocks in sectors sensitive to a continuation of the economic recovery. Our recommendation is to put money to work now.”

Wells Fargo projects a year-end target of 1,650 to 1,700 on the S&P 500, but the markets could still experience swings attributed to a rising rate environment and potential tapering in the Fed’s monthly bond-purchasing plan.

“As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely,” Federal Reserve Bank of Richmond President Jeffrey Lacker said, reports Jeff Kearns for Bloomberg.

Sam Stovall, chief equity strategist at S&P Capital IQ, also raised his 12-month target for the S&P 500 to 1,780 from 1,670.

“In the coming year, we expect to see S&P 500 multiple expansion as investors become more convinced of sustainable economic growth and [earnings] increases, and more comfortable with the gradual unwinding of Fed stimulus,” Stovall wrote in a recent note.

Traders who are anticipating a ramp up in market volatility may hedge equity positions with CBOE Volatility Index based fund products, such as the iPath S&P 500 VIX Short Term Futures ETN (VXX) and ProShares VIX Short-Term Futures ETF (VIXY) . [VIX ETFs Rise Despite Higher Dow]

Additionally, low-volatility equity ETFs, like the iShares MSCI USA Minimum Volatility ETF (USMV) and PowerShares S&P 500 Low Volatility Portfolio (SPLV) , also provide investors with broad stock market exposure but include a conservative focus that helps even out potential swings. [Low-Volatility ETFs Remain Popular with Risk-Averse Investors]

For more information on volatility, visit our volatility category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.