The sizzling stock market, which logged in the best August in more than a decade, has entered in what has been the historically worst month. This is especially true as the U.S. stocks saw a bloodbath in the past couple of days that pushed the Dow Jones and S&P 500 into red for the past week. Both the indices were down 1.8% and 2.3%, respectively, representing their biggest weekly losses since June. Meanwhile, the Nasdaq Composite Index dropped 3.3% to suffer its worst week since Mar 20 (read: 5 Top-Performing ETF Areas of Last Week).
Most of the decline can be attributable to a sharp sell-off in technology stocks as investors worried about their lofty valuations after an astounding surge over the past few months. Per the Bloomberg report, valuation has emerged as a concern for bulls. At about 26 times annual profits for the S&P 500 and 37 times for the Nasdaq 100, American shares are still trading at the highest multiples in more than a decade despite last week’s selloff.
Additionally, a deadlock in another financial-aid package, budget negotiations and election uncertainty added to the chaos. Further, geopolitics continued to be an overhang on the stocks. In the latest development, President Donald Trump is seeking to curb the U.S. relationship with China, threatening to punish any American companies that create jobs overseas and forbid those that do business in China from winning federal contracts. The Trump administration is also considering another ban on China’s cotton.
If history is any guide, September is considered a weak month as the S&P 500 has fallen about 1% on average in September since 1950, per the LPL Financial data. The index also has shed 0.2% on average in the election year. Since World War II, the S&P 500 has seen an average decline of 0.5%, according to CFRA (read: Top-Ranked Sector ETFs & Stocks to Buy for September).
Though almost every sector has declined sharply in the past week, few ETFs were still in green and looks to be solid picks amid the market turmoil. These funds do not purely seek investment in equities but follow some kind of strategies. We have highlighted some of them below:
Cambria Tail Risk ETF (TAIL - Free Report)
This fund seeks to mitigate significant downside market risk as it invests in a portfolio of "out of the money" put options purchased on the U.S. stock market. The TAIL strategy offers the potential advantage of buying more puts when volatility is low and fewer puts when volatility is high. While a portion of the fund's assets will be invested in the basket of long put option premiums, the majority of fund assets will be invested in intermediate-term U.S. Treasuries. The product has amassed $348.8 million in its asset base and charges 59 bps in annual fees from investors.
AGFiQ US Market Neutral Value Fund (CHEP - Free Report)
The fund has potential to generate positive returns regardless of the direction of the stock market, so long as undervalued stocks outperform overvalued stocks. It offers exposure to the “value” factor by investing in U.S. equities that have below-average valuations and shorting those securities that have above-average valuations. This can easily be done by tracking the Dow Jones U.S. Thematic Market Neutral Value Index. The ETF has AUM of $0.7 million and an expense ratio of 1.61%.
ProShares RAFI Long/Short (RALS - Free Report)
This ETF seeks to isolate the potential for outperformance of the RAFI fundamental methodology by taking long positions in the RAFI US 1000 Index and short positions in the market-cap weighted Russell 1000 Index. It allocates equal dollar amounts to both long and short equity positions and follows the FTSE RAFI US 1000 Long/Short Total Return Index. The product has AUM of $5.2 million and charges 95 bps in annual fees (read: Don't Fear Correction: ETF Laggards Are Emerging Leaders).
Aptus Drawdown Managed Equity ETF (ADME - Free Report)
This ETF seeks capital appreciation with a focus on managing drawdown risk through hedges. The strategy typically selects 40-50 large U.S. companies based on a Yield plus Growth framework, filtering candidates on dividend yield, growth outlook, valuation and price momentum. The fund charges 79 bps in annual fees and has accumulated $158.6 million in its asset base.
AdvisorShares Dorsey Wright Short ETF (DWSH - Free Report)
This is an actively managed ETF that short sells U.S. large-cap securities with the highest relative weakness within an investment universe primarily, comprising large-capitalization U.S.-traded equities. It has accumulated $100.1 million in its asset base and charges a higher annual fee of 3.07%.
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