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Hedge Your Portfolio Against Sell-Off With These ETFs

On September 9, Wall Street saw the steepest one-day plunge in months, following the Fed Bank of Boston President Eric Rosengren’s comments on the possibility of sooner-than-expected Fed policy tightening. Along with the hawkish statement by the Fed official (who is known for its dovish statements), a plunge in oil prices following U.S. producers’ increased drilling and a nuclear test by North Korea triggered a panic-driven sell-off.

Stocks around the world were flattened and bonds were crushed. The U.S. 10-year Treasury yield rose 13 bps in just two days to 1.67% on September 9, while yield on the six-month U.S. Treasury yield grew 2 bps to 0.51% during the same timeframe.  

This steepening of the yield curve probably indicates that investors have faith in economic growth despite the dreary job, manufacturing and service sector data for the month of August. In fact, these unspringing data points put off increased speculation over a September hike that emerged last month. But talks were back on the table last week (read: August Job Data Muddles Fed Rate Hike Chance: ETFs to Buy).

Inside the Bloodbath

The massacre was noticed in all the assets – be it risky or a safe haven. Safe haven asset gold lacked luster with SPDR Gold Shares GLD losing about 0.7% on September 9. Silver bullion ETF iShares Silver Trust SLV shed over 2.7% on the very day while United States Oil USO was off over 3.3% on supply glut concerns.

Out of the U.S. treasury ETFs, PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund ZROZ,which has added 21.6% in the year-to-date frame (as of September 9, 2016), lost over 2.5% on September 9. iShares 20+ Year Treasury Bond ETF TLT is up over 13% so far this year (as of September 9, 2016) but lost over 1.6% on September 9.

Among the equities, the S&P 500 lost about 2.5%, Dow Jones Industrial Average shed over 2.1% and the Nasdaq composite plunged over 2.5% on September 9. The knock-on effect of the Wall Street sell-off spread all over the global market, with iShares MSCI Emerging Markets ETF EEM slumping about 3.4%, Vanguard FTSE Europe ETF VGK falling 2.1%, iShares MSCI Japan ETF EWJ shedding about 1.7% and all-world ETF iShares MSCI ACWI ACWI) retreating over 2.3% on September 9.

Where to Find Positive Returns?

In any case, September is not favorable for equity indices. It is historically the worst month of the year for stocks. If this was not enough, both U.S. equities and treasuries appear overvalued at the current level, given the U.S. Treasuries’ astounding year-to-date rally and the U.S. indices’ recent highs (read: 6 ETFs for a Scary September).

In such a scenario, investors may rev up their exposure to alternative routes for positive returns. Below we highlight a few alternative ETFs that may beat the recent blues in the market (read: ETF Strategies for 2H).

WeatherStorm Forensic Accounting Long-Short ETF FLAG

The underlying index of the fund seeks to allocate capital to higher quality stocks at lucrative valuations while shorting poor quality stocks offering a less compelling valuation. The fund added about 0.7% on September 9, 2016 (read: After Goldman, DB Warns About S&P 500: Play Alternative ETFs).

Hull Tactical Fund ETF HTUS

The fund is an actively managed in nature. It intends to achieve long-term growth from investments in the U.S. equity and Treasury markets, irrespective of market conditions. The fund was up over 0.3% on September 9, 2016.

PowerShares Multi-Strategy Alternative Portfolio ETF LALT

This is an actively managed fund that seeks to achieve a positive total return with low correlation to the broader securities markets by investing in a combination of equity securities, financial futures contracts, forward currency contracts and other securities. The fund is up over 0.3% on September 9.

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

Investors who want to shift their focus to investing in low beta stocks during this uncertain market environment can consider adding BTAL ETF to their portfolio. This fund tracks the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index. The index identifies the lowest beta stocks and goes long on them, while at the same time going short on the highest beta stocks. The fund has gained over 0.2% on September 9, 2016.

ProShares RAFI Long/Short (RALS)
The fund tracks the FTSE RAFI US 1000 Long/Short Total Return Index, which provides equal dollar allocation to both long and short equity positions. The fund has added about 0.2% on September 9, 2016.

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ISHARS-20+YTB (TLT): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
ISHARS-JAPAN (EWJ): ETF Research Reports
ISHARS-EMG MKT (EEM): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
ISHARS-SLVR TR (SLV): ETF Research Reports
ISHRS-MSCI ACWI (ACWI): ETF Research Reports
HULL TACTICAL (HTUS): ETF Research Reports
QS-US MN AN-BET (BTAL): ETF Research Reports
VANGD-FTSE EUR (VGK): ETF Research Reports
PIMCO-25Y ZERO (ZROZ): ETF Research Reports
PWRSH-MS AP (LALT): ETF Research Reports
PRO-RAFI L/S (RALS): ETF Research Reports
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Zacks Investment Research
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