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5 Long/Short ETFs to Defend Your Portfolio Against Volatility
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With volatility being the catchword now in the broader equity market due to a hawkish Fed and geopolitical tensions related to Russia and Ukraine, investors might be clueless about the future movement. There have been wild swings in Wall Street in the past few days.
The latest round of selloff on Feb 22 occurred when Putin announced that he would recognize the independence of Donetsk and Luhansk and signed a decree calling for forces to enter the two regions, per a CNBC article.
This marred hopes of a diplomatic resolution for tensions between Russia and Ukraine. U.S. President Biden publicly called Russia's move to deploy troops to separatist regions of Ukraine "the beginning of a Russian invasion" of the region.
The United States announced the first tranche of sanctions on Russian financial institutions, sovereign debt and oligarchs in the country. On Tuesday, Feb 22, U.S. Secretary of State Antony Blinken also said that he has called off a meeting with his Russian counterpart, Foreign Minister Sergei Lavrov.
European foreign affairs ministers are also meeting in Brussels to discuss the EU’s next steps. The United Kingdom already announced the first batch of Russia sanctions, targeting banks and wealthy individuals. Germany too halted the approval of the gas pipeline Nord Stream 2 after Russia’s actions..
Meanwhile, most central banks around the developed world have been acting hawkish with rate hikes and QE tapering. Central banks are resorting to tightening moves to contain sky-high inflation (caused by supply chain woes). No wonder, stocks are falling due to rising rate worries and geopolitical tensions. Against this backdrop, investors will likely remain edgy in the coming days.
Thus, to bypass the equity market weakness, investors may rev up their exposure to long/short ETFs. Below we highlight a few of these that have outperformed the S&P 500-based SPY (down 9.6%) this year (as of Feb 22, 2022).
ETFs in Focus
KFA Mount Lucas Index Strategy ETF (KMLM - Free Report) – Up 8% YTD; Up 6.5% Past Month
The actively-managed KFA Mount Lucas Index Strategy ETF seeks to provide a total return that, before fees and expenses, exceeds that of the KFA MLM Index over a complete market cycle. The index includes futures contracts on 11 commodities, 6 currencies and 5 global bond markets. These three baskets are weighted by their relative historical volatility, and within each basket, the constituent markets are equal-dollar weighted. KMLM charges 90 bps in fees and yields 6.42% annually.
ProShares RAFI Long/Short ETF – Up 6.4% YTD; Up 1.7% Past month
The underlying FTSE RAFI US 1000 Long/Short Total Return Index allocates an aggregate equal dollar amount to both long and short equity positions. The long equity positions consist of securities in the FTSE RAFI US 1000 Total Return Index, and the short equity positions consist of securities in the Russell 1000 Total Return Index. RALS charges 95 bps in fees and yields 1.07% annually.
Leatherback Long/Short Alternative Yield ETF (LBAY - Free Report) – Up 7% YTD; Up 0.6% Past month
The Leatherback Long/Short Alternative Yield ETF is an actively managed fund. Leatherback establishes long positions in securities it believes will provide sustainable shareholder yield and takes short positions in securities it believes will decline in price. Leatherback uses a quantitative and fundamental approach to identify companies it believes have the potential to reward shareholders. The bias is towards dividend awards, which seek to provide downside risk mitigation and are additive to total return. The expense ratio of LBAY is 1.43% and it yields about 3.16% annually.
AGFiQ US Market Neutral Anti-Beta Fund (BTAL - Free Report) – Up 3.4% YTD; Up 0.3% Past Month
The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long/short market neutral index that is dollar-neutral. BTAL invests primarily in long positions in low-beta U.S. equities and short positions in high-beta U.S. equities on a dollar neutral basis, within sectors. The expense ratio of BTAL is 2.19%.
First Trust Merger Arbitrage ETF (MARB - Free Report) – Up 0.8% YTD; Up 0.9% Past Month
This ETF is active. The fund looks to achieve its investment objective by establishing long and short positions in the equity securities of companies that are involved in a publicly-announced significant corporate event, such as a merger or acquisition. The ETF holds 32 securities excluding cash. The expense ratio of MARB is 2.23%.
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5 Long/Short ETFs to Defend Your Portfolio Against Volatility
With volatility being the catchword now in the broader equity market due to a hawkish Fed and geopolitical tensions related to Russia and Ukraine, investors might be clueless about the future movement. There have been wild swings in Wall Street in the past few days.
The latest round of selloff on Feb 22 occurred when Putin announced that he would recognize the independence of Donetsk and Luhansk and signed a decree calling for forces to enter the two regions, per a CNBC article.
This marred hopes of a diplomatic resolution for tensions between Russia and Ukraine. U.S. President Biden publicly called Russia's move to deploy troops to separatist regions of Ukraine "the beginning of a Russian invasion" of the region.
The United States announced the first tranche of sanctions on Russian financial institutions, sovereign debt and oligarchs in the country. On Tuesday, Feb 22, U.S. Secretary of State Antony Blinken also said that he has called off a meeting with his Russian counterpart, Foreign Minister Sergei Lavrov.
European foreign affairs ministers are also meeting in Brussels to discuss the EU’s next steps. The United Kingdom already announced the first batch of Russia sanctions, targeting banks and wealthy individuals. Germany too halted the approval of the gas pipeline Nord Stream 2 after Russia’s actions..
Meanwhile, most central banks around the developed world have been acting hawkish with rate hikes and QE tapering. Central banks are resorting to tightening moves to contain sky-high inflation (caused by supply chain woes). No wonder, stocks are falling due to rising rate worries and geopolitical tensions. Against this backdrop, investors will likely remain edgy in the coming days.
Thus, to bypass the equity market weakness, investors may rev up their exposure to long/short ETFs. Below we highlight a few of these that have outperformed the S&P 500-based SPY (down 9.6%) this year (as of Feb 22, 2022).
ETFs in Focus
KFA Mount Lucas Index Strategy ETF (KMLM - Free Report) – Up 8% YTD; Up 6.5% Past Month
The actively-managed KFA Mount Lucas Index Strategy ETF seeks to provide a total return that, before fees and expenses, exceeds that of the KFA MLM Index over a complete market cycle. The index includes futures contracts on 11 commodities, 6 currencies and 5 global bond markets. These three baskets are weighted by their relative historical volatility, and within each basket, the constituent markets are equal-dollar weighted. KMLM charges 90 bps in fees and yields 6.42% annually.
ProShares RAFI Long/Short ETF – Up 6.4% YTD; Up 1.7% Past month
The underlying FTSE RAFI US 1000 Long/Short Total Return Index allocates an aggregate equal dollar amount to both long and short equity positions. The long equity positions consist of securities in the FTSE RAFI US 1000 Total Return Index, and the short equity positions consist of securities in the Russell 1000 Total Return Index. RALS charges 95 bps in fees and yields 1.07% annually.
Leatherback Long/Short Alternative Yield ETF (LBAY - Free Report) – Up 7% YTD; Up 0.6% Past month
The Leatherback Long/Short Alternative Yield ETF is an actively managed fund. Leatherback establishes long positions in securities it believes will provide sustainable shareholder yield and takes short positions in securities it believes will decline in price. Leatherback uses a quantitative and fundamental approach to identify companies it believes have the potential to reward shareholders. The bias is towards dividend awards, which seek to provide downside risk mitigation and are additive to total return. The expense ratio of LBAY is 1.43% and it yields about 3.16% annually.
AGFiQ US Market Neutral Anti-Beta Fund (BTAL - Free Report) – Up 3.4% YTD; Up 0.3% Past Month
The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long/short market neutral index that is dollar-neutral. BTAL invests primarily in long positions in low-beta U.S. equities and short positions in high-beta U.S. equities on a dollar neutral basis, within sectors. The expense ratio of BTAL is 2.19%.
First Trust Merger Arbitrage ETF (MARB - Free Report) – Up 0.8% YTD; Up 0.9% Past Month
This ETF is active. The fund looks to achieve its investment objective by establishing long and short positions in the equity securities of companies that are involved in a publicly-announced significant corporate event, such as a merger or acquisition. The ETF holds 32 securities excluding cash. The expense ratio of MARB is 2.23%.