Volatility has been the key theme on Wall Street over the past couple of months. Although earnings optimism has once again encouraged investors to take on risk, strained U.S.-China trade ties and escalating tensions in Syria are acting as dampeners.
Notably, the United States and its Western allies are jointly mulling over a possible military action as early as the end of this week over a suspected poison gas attack in Syria. The move could provoke a response from Russia as Moscow warned that any U.S. military action would have serious consequences.
Aside geopolitics, stock fundamentals look strong given the dual tailwinds of solid earnings and tax reform. Earnings for the S&P 500 index are expected to grow 16% from the same period last year on 7.4% higher revenues. Earnings growth is much higher than the Q4 growth of 13.5%, and represents the highest quarterly earnings growth in seven years. Meanwhile, $1.5 trillion tax cuts will perk up the economy and save billions for corporations, leading to reflation trade and higher earnings.
Additionally, the confidence in the economy and the nine-year old bull market has been robust buoyed by increasing consumer spending, rising consumer confidence and 17-year low unemployment.
In order to make the most of the encouraging trend amid volatility, investors should apply some hedge techniques to their equity portfolio. While there are a number of ways to do this, we have highlighted five volatility hedged ETFs that could prove beneficial amid market turbulence. Investors should note that these funds have the potential to stand out and might outperform the simple vanilla funds in case of rising volatility.
How to Play
DeltaShares S&P 500 Managed Risk ETF (DMRL – Free Report)
This ETF seeks to track the S&P 500 Managed Risk 2.0 Index, which is designed to simulate a downside-protected portfolio by utilizing a framework that includes targeted volatility and a synthetic option overlay to hedge the downside risk of the portfolio. DMRL has accumulated nearly $380.8 million in its asset base and trades in a light volume of 9,000 shares. It charges 35 bps in fees per year.