Investors may want to consider temporary ETFs to hedge against recent market volatility.
Bruce Bond, CEO of Innovator ETFs, sees an opportunity in exchange-traded funds to provide some protection from the market's downside.
“This (strategy) is for a group of people who are interested in getting exposure to the market, but not taking on the full risk of the market,” Bond told CNBC on Wednesday.
Innovative ETFs release monthly ETFs. Their August ETF is PAUG and offers 15% downside protection.
“If someone wants to invest in the S&P 500, they can jump in and do it right away,” Bond said. “It has 15% downside protection and 12.8% upside protection.”
Bond recommends that investors hold these funds 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 the following year. Next August, they will be fully valued, and then we reset them for the following year,” Bond said.
Mark Higgins of index fund advisors expressed skepticism about strategies like ETFs that allow investors to hedge against volatility.
“What worries me is that too many investors are coming up with a very expensive solution to what is ultimately a simple problem,” Index Fund Advisors senior vice president said in the same clip. “They need to be more comfortable with the natural volatility of the markets.”
Higgins believes there are cheaper solutions to dealing with market uncertainty – the cheapest being not to look at your portfolio too much and to talk to your advisor before making any radical moves out of surprise or fear.
“I think financial advisers who do their job are able to provide calm,” Higgins said.
