Back to top

Image: Bigstock

Defensive ETFs for Investors Fearing Further Market Crash

Read MoreHide Full Article

Wall Street was off to the worst start to a year since 1939. And the global market selloff will continue, according to Bank of America Corp., as quoted on Bloomberg. After an awful first-quarter, the month of May is also proving rough for the markets, mainly due to the Fed’s biggest interest rate hike in 22 years.

Investors grew concerned about the impact of the higher rates on the economy and business as well as the chances of stagflation. Stagflation arises when high inflation hits the economy and the age-old policy treatment of inflationary pressure – hiking interest rates – goes against economic growth. In short, higher inflation combined with falling growth results in stagflation.

Though the Fed hinted at very less chances of a 75-bp rate hike, it means there could be several 50 basis point increases over the next few months, said Brunello Rosa, who is CEO and head of research at Rosa & Roubini, a consultancy he co-founded with well-known market bear Nouriel Roubini, as quoted on CNBC.

The market is abuzz with rising recessionary risks. Goldman Sachs economists kept the probability of a U.S. recession within the next 24 months low at 38% in April, as quoted on fortune. This was a less bearish view than many Wall Street analysts.

But last week, Goldman analysts led by Jan Hatzius admitted that risks to the U.S economy have grown over the past month. However, a strong U.S. consumer may help the Fed secure a “soft landing” in 2022 as interest rates rise, Goldman said, as quoted on that Fortune article.

Against this backdrop, investors should be prepared for a further crash in the market following recessionary talks. Long/Sort ETFs could go a long way in restoring the value of one’s portfolio against this edgy backdrop.

ETFs in Focus

IMGP DBi Managed Futures Strategy ETF (DBMF - Free Report) – Up 24.4% against 13.5% decline in the S&P 500

The fund employs long and short positions in derivatives, primarily futures contracts and forward contracts, across the broad asset classes of equities, fixed income, currencies and commodities. The fund yields 8.27% annually and charges 85 bps in fees.

Leatherback LongShort Alternative Yield ETF (LBAY - Free Report) – Up 15.1% YTD

The Leatherback Long/Short Alternative Yield ETF is an actively managed fund that seeks income generation and capital appreciation through shareholder yielding equities and income-producing securities.

It takes long positions in securities it believes will provide sustainable shareholder yield and short positions in securities it believes will decline in price. Leatherback employs an option-writing overlay strategy to generate additional income. The annual expense ratio is 1.43%.

First Trust Managed Futures Strategy ETF (FMF - Free Report) – Up 14.1% YTD

The First Trust Managed Futures Strategy Fund seeks to provide investors with positive returns. The actively managed exchange-traded fund seeks to achieve positive returns that are not directly correlated to broad market equity or fixed income returns by investing, under normal market conditions, in a portfolio of exchange-listed futures. The fund charges 96 bps in fees.

KFA Mount Lucas Index Strategy ETF (KMLM - Free Report) – Up 36.5% YTD

KMLM is benchmarked to the KFA MLM Index, which consists of a portfolio of 22 liquid futures contracts traded on U.S. and foreign exchanges. The index includes futures contracts on 11 commodities, six currencies, and five global bond markets. These three baskets are weighted by their relative historical volatility, and within each basket, the constituent markets are equal dollar-weighted. It charges 90 bps in fees.

LHA Market State Alpha Seeker ETF (MSVX - Free Report) – Up 4.60% YTD

The actively-managed LHA Market State Alpha Seeker ETF seeks to provide positive returns, across multiple market cycles, that are generally not correlated to the U.S. equity or fixed income markets. The fund employs a rules-based risk management approach to make tactical long/short allocations to equity futures & options, VIX futures & options, and ETFs utilizing a rules-based risk management approach. (VIX is the Cboe Volatility Index.) Its expense ratio is 1.50%.