The S&P 500 is down more than 10% in the fourth quarter and a significant portion of the benchmark U.S. equity index is in a bear market. Marquee sectors such as energy, financial services and materials are in bear markets and there even some concerns the previously steady healthcare sector could come under fire. Where can you safely store your money?
Some of the best exchange-traded funds (ETFs) to buy right now offer some form of downside protection. The S&P’s ominous start to December, a month that is historically kind to stocks, only increases the allure of some of the best ETFs to buy with downside protection. As of Monday, Dec. 17, the S&P 500 is off to its worst December start since 1980.
Time will tell if 2019 brings a recession and a deeper extension of what is increasingly looking like a bear market, but investors can take an active approach to defend against continued downside in the markets.
Here are some of the best ETFs to buy for investors looking for downside protection:
AGFiQ US Market Neutral Anti-Beta Fund (BTAL)
Expense ratio: 0.75% per year, or $75 on a $10,000 investment
As was noted earlier, the S&P 500 is down more than 10% in the fourth quarter, but the AGFiQ US Market Neutral Anti-Beta Fund (NYSEARCA:BTAL) is earning its mettle as one of the best ETFs to buy. This market neutral strategy is up an astounding 8.38% in the current quarter.
“BTAL’s objective is to seek performance results that correspond to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index,” according to the fund’s issuer. “BTAL strives to achieve this objective, by investing long in U.S. equities that have below average betas and shorting those securities that have above average betas, within sectors.”
BTAL could be one of the best ETFs to buy for investors looking for alternatives to Treasuries, volatility-linked products and low volatility ETFs as means for fighting down-trending markets.
AdvisorShares Ranger Equity Bear ETF (HDGE)
Expense ratio: 2.72% per year
The AdvisorShares Ranger Equity Bear ETF (NYSEARCA:HDGE), though not leveraged, is an outright bearish ETF, meaning this is not one of the best ETFs to buy in an overt bull market. However, the current market environment is making HDGE look like easily one of the best ETFs to buy right now. A fourth-quarter gain of north of 14% confirms as much.
HDGE’s portfolio manager “implements a bottom-up, fundamental, research driven security selection process. In selecting short positions, the Fund seeks to identify securities with low earnings quality or aggressive accounting which may be intended on the part of company management to mask operational deterioration and bolster the reported earnings per share over a short time period,” according to AdvisorShares.
As of Oct. 31, HDGE’s short positions included Coty Inc. (NYSE: COTY) and Arista Networks Inc. (NYSE:ANET).
JPMorgan Ultra-Short Income ETF (JPST)
Expense ratio: 0.18% per year
One of investors’ favorite safe havens when stocks decline is bonds, namely U.S. Treasuries due to that asset class’s stellar credit quality. Short-term bond funds have been among this year’s best ETFs to buy and that theme explains the exponential growth of the JPMorgan Ultra-Short Income ETF (NYSEARCA:JPST).
JPST has $4.80 billion in assets under management of which $4.69 billion has flowed into the fund just this year. That makes JPST one of the most prolific fixed income ETFs in terms of new assets added on a year-to-date basis. JPST’s duration is just 0.50 years, making it one of the best ETFs to buy should interest rates continue rising.
“Looking into 2019 however, we believe that volatility in fixed income will begin to rise as the Federal Reserve continues to raise interest rates and global central banks continue curtailing asset purchase programs,” according to JPMorgan Asset Management.
WisdomTree Dynamic Long/Short U.S. Equity Fund (DYLS)
Expense ratio: 0.48% per year
The WisdomTree Dynamic Long/Short U.S. Equity Fund (NYSEARCA:DYLS) employs a unique, passive long/short strategy. DYLS, which debuted three years ago, tracks the WisdomTree Dynamic Long/Short U.S. Equity Index.
DYLS’s long “positions include approximately 100 U.S. large- and mid-capitalization stocks that meet eligibility requirements and have the best-combined score based on fundamental growth and value signals,” according to WisdomTree.
The fund’s long positions are offset by short positions in the 500 largest domestic stocks as ranked by market capitalization.
AdvisorShares Dorsey Wright Short ETF (DWSH)
Expense ratio: 0.99% per year
Fewer than 150 U.S.-listed ETFs, or less than 10% of that universe, are up at least 5% year-to-date. The AdvisorShares Dorsey Wright Short ETF (NASDAQ:DWSH) is one of those funds and as a bearish fund, it is one of the best ETFs to buy right now.
DWSH debuted in July, but proving it is one of the best (and most well-timed) ETFs, the fund is up a spectacular 20% in the fourth quarter. At the end of the third quarter, nearly a third of DWSH’s short positions hailed from the consumer discretionary and industrial sectors. Nearly two-thirds of the fund’s bearish positions are classified as mid-cap stocks.
“DWSH typically has a portfolio of 75 – 100 equities that begin with a modified equal weighting, demonstrating the highest relative weakness characteristics according to Dorsey Wright’s proprietary individual stock rotation methodology,” according to AdvisorShares.
SPDR Portfolio Short-Term Corporate Bond ETF (SPSB)
Expense ratio: 0.07% per year
Just because markets are volatile and stocks are faltering does not mean investors should give up on investing for income. The SPDR Portfolio Short-Term Corporate Bond ETF (NYSEARCA:SPSB) helps with that while offering the potential for reduced portfolio risk. Plus, this is one of the best ETFs to buy for cost-conscious investors as highlighted by its paltry annual fee of 0.07%.
SPSB’s option-adjusted duration is just 1.84 years, but the fund has a 30-day SEC yield of 3.52% and over 55% of its holdings are rated A, AA or AAA.
“This is a solid option for low-cost, efficient exposure to U.S. short-term investment-grade corporate bonds. Its conservative strategy keeps credit and interest-rate risk low and has a durable cost advantage over Morningstar Category peers,” according to Morningstar.
VanEck Vectors NDR CMG Long/Flat Allocation ETF (LFEQ)
Expense ratio: 0.59% per year
The VanEck Vectors NDR CMG Long/Flat Allocation ETF (NYSEARCA:LFEQ) goes beyond typical long/short strategies. This fund can go from long to flat, meaning it moves its holdings into cash when stocks weaken.
LFEQ, which is 14 months old, tracks the Ned Davis Research CMG U.S. Large Cap Long/Flat Index. That index “follows a proprietary model that determines when, and by how much, it allocates to U.S. equities and/or U.S. Treasury bills to seek to help avoid losses in declining markets or capitalize from rising markets,” according to VanEck.
LFEQ’s equity allocations can range from 100% to 80% to 40% all the way down to 0%.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
