Worried About A Trump Slump? Consider These Market Neutral ETFs

From Zacks: The latest streak of gains in the key U.S. indices faltered to start 2017 as concerns regarding stock market correction loom large.

It now seems that the outstanding U.S. stock rally that started with Trump’s win might finally succumb to a slowdown on overvaluation concerns. As per a source, the S&P 500 is overvalued by 73% going by the Case-Schiller cyclically adjusted price-to-earnings (CAPE/PE) ratio (read: Time to Prepare for ‘Trump Slump’ with These ETFs?).

Though hopes of easing regulation, lower taxes and heavy investments toward infrastructure pushed stocks higher, less clarity on such issues in Trump’s first press conference since July stirred concerns all over again (read: Trump’s First Press Conference Puts These ETFs in Focus).

Though chances are high that the stocks will be more-or-less steady this year, especially on a pickup in corporate earnings, one cannot rule out chances of volatility absolutely. After all, the U.S. President-elect’s relationship with foreign superpowers are yet to be understood clearly (read: Best and Worst ETFs to Start 2017).

Trump has been critical of automakers and intelligence agencies. Mexican trade has so far faced maximum pressure because of Trump’s border tax. Recently, Donald Trump raised a similar word of caution for German auto makers by saying that he would levy a border tax of 35% on vehicles or components imported to the U.S. market.

Plus, geo-political risks including terrorism and Brexit and its contagion over the global market may pull U.S. stocks down ahead. Even if Trump delivers on his promises of increasing tax cuts, this is likely to swell the federal deficit which is a cause of concern for an economy that has just started picking up momentum.

However, investors should also note that being a large-cap index, a rising greenback in Trump expansionary policies will be a negative for large-cap stocks. These stocks have considerable foreign currency exposure.

SPDR S&P 500 ETF (SPYFree Report) lost about 0.4% on January 17, 2017, SPDR Dow Jones Industrial Average ETF (DIAFree Report) retreated about 0.3% and Nasdaq-100 based PowerShares QQQ ETF (QQQFree Report) was down about 0.3%.

To bypass the expected equity market volatility, investors may rev up their exposure to long/short ETFs. Below we highlight two ETFs that may beat the ongoing blues in the market (read: Volatility ETFs in Focus as Trump Rally Fizzles Out).

U.S Market Neutral Anti-Beta Fund (BTALFree Report)

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 follows the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index which is an equal weighted, dollar neutral, sector neutral benchmark. 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 charges 75 bps in fees. The fund advanced about 1.8% on January 17, 2017.

The U.S Market Neutral Anti-Beta Fund (NYSE:BTAL) was unchanged in premarket trading Thursday. Year-to-date, BTAL has declined -0.66%, versus a 1.44% rise in the benchmark S&P 500 index during the same period.

BTAL currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #17 of 23 ETFs in the Long Short ETFs category.

First Trust Alt Abs Ret Strat ETF (FAARFree Report)

This is an actively managed exchange-traded fund that seeks to provide investors with long-term total return. The fund charges 95 bps in fees. The fund added over 0.6% on January 17, 2017.

The First Trust Alternative Absolute Return Strategy ETF (NASDAQ:FAAR) was unchanged in premarket trading Thursday. Year-to-date, FAAR has gained 0.45%, versus a 1.44% rise in the benchmark S&P 500 index during the same period.

FAAR currently has an ETF Daily News SMART Grade of NR (Not Rated), and is ranked # of 122 ETFs in the Commodity ETFs category.


This article is brought to you courtesy of Zacks Research.