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Wall Street has been caught in a vicious circle of woes, led by recent tariff escalations and a slowdown in the economy. This is especially true as the U.S. stocks erased all the gains made post-election, and the S&P 500 is now at its lowest level since November when Donald Trump won the Presidential election (read: 5 Safe ETF Buying Zones as Global Trade Tensions Escalate).
In such a scenario, investors may want to remain invested in the equity world with some downside protection at the same time. This could be easily achieved by investing in low-beta products like Core Alternative ETF (CCOR - Free Report) , Innovator Defined Wealth Shield ETF (BALT - Free Report) , Global X S&P 500 Risk Managed Income ETF (XRMI - Free Report) , Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) and Simplify Hedged Equity ETF (HEQT - Free Report) . These could be the safest bets for as long as the uncertainty lingers.
Trade War Risks
The fears of the global trade war intensified after President Trump's planned tariffs on America’s top trading partners — Mexico, Canada and China — finally went into effect on March 4. The Trump administration imposed a new 25% tariff on Canada and Mexico and doubled down on China duties to 20%.
Canada hit back with 25% tariffs on C$155 billion ($107 billion) worth of U.S. goods, with C$30 billion in immediate effect on everyday goods like pasta, clothing and perfume. China retaliated with fresh 10-15% duties on several U.S. agricultural and food products, set to take effect from March 10. Products like soybeans, sorghum, pork, beef, aquatic products, fruits, vegetables and dairy products will face 10% tariffs, whereas 15% duties will be imposed on chicken, wheat, corn and cotton. China also imposed export and investment restrictions on 25 U.S. firms.
Mexico promised to retaliate soon. President Claudia Sheinbaum indicated plans for reciprocal measures, including tariffs on U.S. products such as pork, cheese and steel, though specifics were pending (read: Trump Tariffs & Retaliatory Moves Put These ETF Areas in Focus).
The tit-for-tat tariffs have sparked volatility in the stock market. Additionally, the U.S. economy has shown signs of slowing down. The latest data reveals that the activity in the manufacturing sector slowed in February, while costs increased and employment contracted, weighed down by Trump's tariff policies. U.S. business activity stalled in February, and consumer sentiment dropped. Concerns have started in the homebuilder space that tariffs would raise the cost of building materials, including lumber and appliances, leading to elevated home prices and reduced affordability.
The weak trend is likely to continue with more tariffs from the new administration on the way. The rounds of tariffs will hurt U.S. consumers, driving the prices of goods, thereby curtailing spending. It will further impact the worldwide economy and corporate profits, particularly for big U.S. exporters. All these will continue to weigh on the stock market and can disrupt global supply chains.
Why Low Beta?
Beta measures the price volatility of stocks or funds relative to the overall market. It has a direct relationship with market movements. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile, while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.
That said, low-beta ETFs exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market is crumbling. Though these have fewer risks and lower returns, the funds are considered safe and resilient amid uncertainty. However, when markets soar, these low-beta funds experience lesser gains than their broader market counterparts and thus lag behind their peers.
The Core Alternative ETF is an actively managed ETF that utilizes several strategies to produce capital appreciation while reducing risk exposure across market conditions. It invests primarily in U.S. equities, specifically focusing on high-quality companies across all industries and sectors, which have prospects for long-term total returns as a result of their ability to grow earnings and their willingness to increase dividends over time.
The Core Alternative ETF holds 45 securities in its basket and charges a high expense ratio of 1.18%. It has amassed $70.2 million in its asset base.
Innovator Defined Wealth Shield ETF seeks to track the return of the SPDR S&P 500 ETF Trust (SPY) to a cap and provide a measure of downside protection by seeking to buffer investors against losses. The ETF targets a 20% buffer in every 3-month outcome period.
Innovator Defined Wealth Shield ETF has an AUM of $1.2 billion and charges 69 bps in annual fees.
Global X S&P 500 Risk Managed Income ETF (XRMI - Free Report) : Beta - 0.35
Global X S&P 500 Risk Managed Income ETF seeks to track the Cboe S&P 500 Risk Managed Income Index. It employs a protective net-credit collar strategy for investors seeking the income characteristics of a covered call fund while mitigating the risks of a major market selloff with a protective put. XRMI aims to achieve this outcome by owning the stocks in the S&P 500 Index while buying 5% out-of-the-money put options on the index and selling at-the-money call options on the same index (read: Time for Defensive Sector ETFs?).
XRMI has amassed $46.8 million in its asset base and charges 60 bps in annual fees.
Invesco S&P 500 Downside Hedged ETF is an actively managed fund that seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. Invesco S&P 500 Downside Hedged ETF tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework.
Invesco S&P 500 Downside Hedged ETF has an AUM of $115.9 million and charges 39 bps in fees per year from its investors.
Simplify Hedged Equity ETF seeks to provide capital appreciation by offering U.S. large-cap exposure while investing in a series of put-spread collars designed to help reduce volatility. By deploying a ladder of collars that expire over three sequential months, the fund seeks to create a hedged equity experience that is additionally robust to rebalancing luck.
With an AUM of $409.1 million, Simplify Hedged Equity ETF charges 44 bps in annual fees.
Bottom Line
Investors should note that these products are not meant to generate outsized returns. Instead, these provide stability in the portfolio, protecting the initial investment. In particular, these products could be worthwhile for low-risk-tolerant investors looking to safeguard their portfolio in a rocky market and some outperformance, especially if market uncertainty prevails in the coming months.
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Low-Beta ETFs to Hedge Against Trade War Risks
Wall Street has been caught in a vicious circle of woes, led by recent tariff escalations and a slowdown in the economy. This is especially true as the U.S. stocks erased all the gains made post-election, and the S&P 500 is now at its lowest level since November when Donald Trump won the Presidential election (read: 5 Safe ETF Buying Zones as Global Trade Tensions Escalate).
In such a scenario, investors may want to remain invested in the equity world with some downside protection at the same time. This could be easily achieved by investing in low-beta products like Core Alternative ETF (CCOR - Free Report) , Innovator Defined Wealth Shield ETF (BALT - Free Report) , Global X S&P 500 Risk Managed Income ETF (XRMI - Free Report) , Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) and Simplify Hedged Equity ETF (HEQT - Free Report) . These could be the safest bets for as long as the uncertainty lingers.
Trade War Risks
The fears of the global trade war intensified after President Trump's planned tariffs on America’s top trading partners — Mexico, Canada and China — finally went into effect on March 4. The Trump administration imposed a new 25% tariff on Canada and Mexico and doubled down on China duties to 20%.
Canada hit back with 25% tariffs on C$155 billion ($107 billion) worth of U.S. goods, with C$30 billion in immediate effect on everyday goods like pasta, clothing and perfume. China retaliated with fresh 10-15% duties on several U.S. agricultural and food products, set to take effect from March 10. Products like soybeans, sorghum, pork, beef, aquatic products, fruits, vegetables and dairy products will face 10% tariffs, whereas 15% duties will be imposed on chicken, wheat, corn and cotton. China also imposed export and investment restrictions on 25 U.S. firms.
Mexico promised to retaliate soon. President Claudia Sheinbaum indicated plans for reciprocal measures, including tariffs on U.S. products such as pork, cheese and steel, though specifics were pending (read: Trump Tariffs & Retaliatory Moves Put These ETF Areas in Focus).
The tit-for-tat tariffs have sparked volatility in the stock market. Additionally, the U.S. economy has shown signs of slowing down. The latest data reveals that the activity in the manufacturing sector slowed in February, while costs increased and employment contracted, weighed down by Trump's tariff policies. U.S. business activity stalled in February, and consumer sentiment dropped. Concerns have started in the homebuilder space that tariffs would raise the cost of building materials, including lumber and appliances, leading to elevated home prices and reduced affordability.
The weak trend is likely to continue with more tariffs from the new administration on the way. The rounds of tariffs will hurt U.S. consumers, driving the prices of goods, thereby curtailing spending. It will further impact the worldwide economy and corporate profits, particularly for big U.S. exporters. All these will continue to weigh on the stock market and can disrupt global supply chains.
Why Low Beta?
Beta measures the price volatility of stocks or funds relative to the overall market. It has a direct relationship with market movements. A beta of 1 indicates that the price of the stock or fund tends to move with the broader market. A beta of more than 1 indicates that the price tends to move higher than the broader market and is extremely volatile, while a beta of less than 1 indicates that the price of the stock or fund is less volatile than the market.
That said, low-beta ETFs exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market is crumbling. Though these have fewer risks and lower returns, the funds are considered safe and resilient amid uncertainty. However, when markets soar, these low-beta funds experience lesser gains than their broader market counterparts and thus lag behind their peers.
ETFs in Focus
Core Alternative ETF (CCOR - Free Report) : Beta - 0.09
The Core Alternative ETF is an actively managed ETF that utilizes several strategies to produce capital appreciation while reducing risk exposure across market conditions. It invests primarily in U.S. equities, specifically focusing on high-quality companies across all industries and sectors, which have prospects for long-term total returns as a result of their ability to grow earnings and their willingness to increase dividends over time.
The Core Alternative ETF holds 45 securities in its basket and charges a high expense ratio of 1.18%. It has amassed $70.2 million in its asset base.
Innovator Defined Wealth Shield ETF (BALT - Free Report) : Beta - 0.10
Innovator Defined Wealth Shield ETF seeks to track the return of the SPDR S&P 500 ETF Trust (SPY) to a cap and provide a measure of downside protection by seeking to buffer investors against losses. The ETF targets a 20% buffer in every 3-month outcome period.
Innovator Defined Wealth Shield ETF has an AUM of $1.2 billion and charges 69 bps in annual fees.
Global X S&P 500 Risk Managed Income ETF (XRMI - Free Report) : Beta - 0.35
Global X S&P 500 Risk Managed Income ETF seeks to track the Cboe S&P 500 Risk Managed Income Index. It employs a protective net-credit collar strategy for investors seeking the income characteristics of a covered call fund while mitigating the risks of a major market selloff with a protective put. XRMI aims to achieve this outcome by owning the stocks in the S&P 500 Index while buying 5% out-of-the-money put options on the index and selling at-the-money call options on the same index (read: Time for Defensive Sector ETFs?).
XRMI has amassed $46.8 million in its asset base and charges 60 bps in annual fees.
Invesco S&P 500 Downside Hedged ETF (PHDG - Free Report) : Beta - 0.36
Invesco S&P 500 Downside Hedged ETF is an actively managed fund that seeks to deliver positive returns in rising or falling markets that are not directly correlated to broad equity or fixed-income market returns. Invesco S&P 500 Downside Hedged ETF tries to follow the S&P 500 Dynamic VEQTOR Index, which provides broad equity market exposure with an implied volatility hedge by dynamically allocating between different asset classes: equity, volatility and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework.
Invesco S&P 500 Downside Hedged ETF has an AUM of $115.9 million and charges 39 bps in fees per year from its investors.
Simplify Hedged Equity ETF (HEQT - Free Report) : Beta – 0.42
Simplify Hedged Equity ETF seeks to provide capital appreciation by offering U.S. large-cap exposure while investing in a series of put-spread collars designed to help reduce volatility. By deploying a ladder of collars that expire over three sequential months, the fund seeks to create a hedged equity experience that is additionally robust to rebalancing luck.
With an AUM of $409.1 million, Simplify Hedged Equity ETF charges 44 bps in annual fees.
Bottom Line
Investors should note that these products are not meant to generate outsized returns. Instead, these provide stability in the portfolio, protecting the initial investment. In particular, these products could be worthwhile for low-risk-tolerant investors looking to safeguard their portfolio in a rocky market and some outperformance, especially if market uncertainty prevails in the coming months.