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RBC Recommends SPDR Communication Trust as ‘Secret’ Tech Hedge

·1 min read

(Bloomberg) -- RBC Capital Markets recommends bets using a State Street Global Advisors’ exchange-traded fund as a cheaper way of hedging for declines in U.S. technology stocks.

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The Communication Services Select Sector SPDR Fund (ticker XLC) offers “very cheap downside” whereas skew -- a measure of the cost of bearish options bets versus bullish ones -- has climbed recently for the Invesco QQQ Trust Series 1 ETF (ticker QQQ), RBC derivatives strategist Amy Wu Silverman wrote in a note.

While the two funds have a similar profile, it’s a “dirty little secret” that the SPDR fund’s “downside volatility is often a much cheaper hedge because people forget it exists,” Silverman said.

The Nasdaq 100 is up more than 28% so far this year and reached a record high on Nov. 19. The rally has weathered worries about stretched valuations but concerns remain that investors could rethink if Treasury yields rise.

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