Wall Street has been struggling this year triggered by Russia’s invasion of Ukraine, tightening monetary policy and surging commodity prices. In fact, the S&P 500 Index tumbled into a “bear market” after the latest inflation data accelerated recession fears. With this, the benchmark ended the bull market that began at the depths of the COVID crash in March 2020.
Investors may want to remain invested in the equity world but at the same time seek protection from a downside. This could be easily achieved by investing in low-beta products like Invesco S&P 500 Downside Hedged ETF PHDG, Nationwide Nasdaq-100 Risk-Managed Income ETF NUSI, 6 Meridian Small Cap Equity ETF SIXS, Pacer Trendpilot Fund of Funds ETF TRND and Armor US Equity Index ETF ARMR. These funds could be intriguing options for investors amid the current market turbulence.
After cooling somewhat in April, U.S. consumer prices accelerated at the fastest rate in May since 1981, as Americans grapple with a surge in the cost of gas, food and shelter. The consumer price index jumped 8.6% year over year to a fresh 40-year high, from an 8.3% annual increase recorded in April. The data has put pressure on Fed to extend an aggressive series of interest rate hikes and has added to political problems for the White House and Democrats (read: ETFs to Win as Inflation Jumps to New 40-Year High).
Overall, an increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans. Additionally, the persistent rise in commodity prices and the aftermath of the Russia-Ukraine war have already been making invetsors jittery.
As the global economy is struggling with skyrocketing inflation and low growth, the World Bank has warned of a recession and slashed its global growth forecast. It now expects the global economy to expand 2.9% this year, down from 5.7% growth in 2021 and lower than the 401% expectation projected in January. The World Bank cautioned that many countries could fall into recession as the economy slips into a period of stagflation reminiscent of the 1970s.
Why Low Beta?
Beta measures the price volatility of stocks relative to the overall market. It has a direct relationship to market movements. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile, while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.
That said, low-beta products exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market crumbles. Given lesser risks and lower returns, these are considered safe and resilient amid uncertainty. However, when markets soar, these low-beta funds experience lesser gains than the broader market counterparts and thus lag their peers.
All the above-mentioned funds offer broad exposure to a number of sectors and have AUM of more than $50 million, indicating their good tradability.
Invesco S&P 500 Downside Hedged ETF (PHDG) – Beta: 0.33
Invesco S&P 500 Downside Hedged ETF is an actively managed fund and seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. Invesco S&P 500 Downside Hedged ETF tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework (read: 5 Safe Investing Zones &Their ETFs to Escape Market Rout).
Invesco S&P 500 Downside Hedged ETF has accumulated $286.7 million in its asset base and charges 40 bps in fees per year from its investors. Volume is good, exchanging 112,000 shares a day on average.
Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI) – Beta: 0.44
Nationwide Nasdaq-100 Risk-Managed Income ETF targets high income with a measure of downside protection using a rules-based options trading strategy. It is designed for income-focused investors seeking to lower their exposure to market volatility and minimize the potential for losses during down markets.
With AUM of $644.1 million, Nationwide Nasdaq-100 Risk-Managed Income ETF charges 68 bps in annual fees and trades in an average daily volume of 268,000 shares.
6 Meridian Small Cap Equity ETF (SIXS) – Beta: 0.56
6 Meridian Small Cap Equity ETF is an actively managed ETF that uses a quantitively-driven strategy emphasizing high-quality, small-cap stocks. Stocks are first screened to remove those that score poorly on financial and growth measures. Those stocks that pass the screen are then ranked on a stand-alone basis in relation to two factors — beta and value. The stocks that rank the highest for each factor are combined into one portfolio. Stocks that rank high in both factors are over-weighted. This strategy results in a basket of 87 stocks, charging investors 100 bps in annual fees.
The product has amassed $60.8 million in its asset base and trades in a paltry volume of 2,000 shares per day on average (read: 6 Reasons Why You Should Tap Small-Cap ETFs Now).
Pacer Trendpilot Fund of Funds ETF (TRND) – Beta: 0.57
Pacer Trendpilot Fund of Funds ETF follows the Pacer Trendpilot Fund of Funds Index, which seeks to implement a systematic trend-following strategy that directs exposure to 100% to the equity component; or 50% to the equity component and 50% to 3-month US Treasury bills; or 100% to 3-month US Treasury bills, depending on the relative performance of the equity Component and its 200-business day historical simple moving average.
Pacer Trendpilot Fund of Funds ETF has amassed $63.1 million and charges 77 bps in annual fees. It trades in volume of around 9,000 shares a day on average.
Armor US Equity Index ETF (ARMR) – Beta: 0.61
Armor US Equity Index ETF seeks to provide exposure to the sectors of the U.S. equity market that the fund’s index provider believes are most likely to generate positive returns while aiming to…
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