Anticipation of a market decline is not the same as the actual downturn which occurs in the shortest time frame
The interpretation of trend-reversal signals is bound to remain fraught with uncertainty and statistical 'noise'
By accessing ETFs which are negatively correlated to the total market or to specific indices, the investor may seek to protect the long positions of a portfolio - if and when such a trend reversal becomes very probable
Protection is not a long-term engagement and could be rephrased as an insurance taken out on a daily basis
In 'Preparing for Unexpected Downturns', the selected ETFs rely on overlapping derivative strategies
- Investing in VIX Futures - the VIX is an index which measures the market's expectations for volatility over the coming 30 days and the underlying volatility futures in the ETN selection tend to be negatively correlated to the equity market
- Shorting a market index such as the S&P 500® or the S&P MidCap400 or the QQQ ETF(aligned with the NASDAQ-100 index) - which is achieved by a combination of swaps and futures on the chosen index
These instruments are not buy-and-hold funds (ETFs) or notes ( ETNs as is the case for VIX Futures) but integral part of actively managed portfolios
ETFs providing 'built-in' protection, 'rolling over' the underlying derivatives, are attractive as long allocation in uncertain times
- Investing in ETFs providing downside protection by including a volatility hedge represented by Short-Term Futures, such as Invesco S&P 500® Downside Hedged ETF
- The theme "Structured Downside Protection ETFs" presents a range of alternative derivative strategies
For deeper insights, rank the fund selection by performance or by volatility for the selected time period
Over time, fund price momentum signals trends of the last 5 days against a 20-day average
For comparison, select various time frames in the top right menu box, preferably for the shortest period of 2 weeks