Investors may want to consider hedge ETFs to protect against recent market volatility.
Bruce Bond, CEO of Innovator ETFs, sees an opportunity for exchange-traded funds to offer some protection against a market downturn.
“That [strategy] fits into a group of people who are interested in gaining exposure to the market but not taking on the full risk of the market,” Bond told CNBC’s “ETF Edge” on Wednesday.
Innovator ETFs issues monthly buffer ETFs. Their August ETF is under the ticker PAUG and offers 15% downside protection.
“If someone wants to invest in the S&P 500, they can come in and do that,” Bond said. “They have 15% protection on the downside and 12.8% opportunity on the upside.”
Bond recommends that investors hold these ETFs until the end of the year, as the funds are built around one-year options within the portfolio.
“At the end of the year, the options are fully valued, and then we reset them for a subsequent year,” Bond said. “By August of next year, they would be fully valued, so we would reset them for another year.”
Mark Higgins of Index Fund Advisors expressed skepticism about strategies like hedge ETFs that allow investors to hedge volatility.
“My concern would be that too many investors are creating a very expensive solution to what is ultimately a simple problem,” said the senior vice president of Index Fund Advisors in the same segment. “They need to be more comfortable with the normal volatility of the markets.”
Higgins believes there are cheaper solutions to dealing with uncertainty in the markets — the cheapest is to not look at your portfolio too often and talk to your advisor before making any drastic moves out of surprise or fear.
“I believe that financial advisors who do their job can provide peace of mind,” Higgins said.
