Four ETF strategies for diversifying in today’s market environment

IInvestors looking for ways to diversify their portfolios may want to consider different exchange-traded fund approaches for the S&P 500 that can help manage risk and potentially improve returns.

In the recent webcast, Differentiate Your S&P 500 Exposure: Manage Risk, Rotate Factors, Maximize Dividends, and Mitigate Downsides, Sean O’Hara, chairman of Pacer ETFs Distributors, warned of the risks investors face today, pointing to a market that has reached or near an all-time high with a P / E at very high multiples of the historical average. and dividend income close to an all-time low.

Alternatively, O’Hara argued that investors can better manage their access to markets by differentiating their exposure to the S&P 500. To begin with, O’Hara pointed out the Pacer Trendpilot US Large Cap ETF (BATS: PTLC), which follows the Pacer Trendpilot indexing methodology that helps investors better manage risk and maintain exposure to equity markets.

Concretely, the strategy follows strict guidelines with three indicators: an equity indicator, a 50/50 indicator and a Treasury bill indicator.

The action indicator is used as follows: When the benchmark total return index closes above its 200-day SMA for five consecutive business days, the exposure will be 100% to the benchmark. reference. From the equities position, the index will move to the 50/50 position or to the treasury bill position depending on the 50/50 indicator and the treasury bill indicator.

The 50/50 price signal indicator is used as follows: When the benchmark total return index closes below its 200-day SMA for five consecutive business days, the exposure will be 50% to the benchmark and 50% at three months. US Treasury Bills. From the 50/50 position, the Trendpilot index will revert to the equities position or switch to the treasury bill position, depending on the equities indicator or the treasury bill indicator.

The Treasury bill trend indicator is used as follows: When the 200-day SMA of the benchmark total return index closes below its value five business days earlier, the exposure will be 100 % to three-month US Treasury bills. From the treasury bill position, the Trendpilot index will move to the equities position when the equity indicator is triggered. It will not return to its 50/50 position unless the action indicator is triggered first.

In its latest update, Pacer added an extreme valuation trigger that will work such that if at close of business the index is either 20% above or 20% below its 200-day SMA, l The exposure will automatically switch to the 50/50 position. The index will not move to the 100% equity position or the 100% treasury bill position unless it is triggered by one of the indicators mentioned above.

In bond markets, the uptrend appears to be faltering as the traditional role of bonds comes into question as investors face low to negative yields and the prospect of future rate hikes.

Meanwhile, on the stock market side, the NASDAQ, DOW and S&P 500 are at or near historic highs, and valuations are priced to perfection. Uncertainty over U.S.-China relations and the global effect of COVID-19 continue to weigh on sentiment, and long-term return expectations are mixed after the record run after the recovery.

In this type of setup, the Pacer ETFs came out with a suite of structured earnings strategies, or the Pacer Swan SOS ETF series, including the SOS Conservative Pacer Swan ETF (PSCX), the Pacer Swan SOS Moderate ETF (PSMD), the Pacer Swan SOS Flex ETF (PSFD), and the Pacer Swan SOS Fund of Funds ETF (PSFF) to help investors navigate market uncertainty.

The Pacer Swan SOS ETF family was established in December 2020 and aims to give investors exposure to market growth up to a predetermined cap, and they simultaneously offer downside protection via buffers in the event of a downward cycle on the steps. Each ETF in the series has different performance strategies, giving investors the flexibility to invest with whatever risk parameters they want.

Pacer has partnered with Swan Global Management, LLC, which will act as a sub-advisor for the family of funds to help make this happen. The Pacer Swan SOS ETF series seeks to match the returns of SPDR S&P 500 ETF Trust (SPY) up to a predetermined upper limit while providing investors with downside protection to a predetermined point, depending on an investor’s degree of prudence.

Additionally, investors may consider a factor-based investment strategy that alternates its tilt towards the S&P 500 investment factors as the market itself changes. More precisely, the Pacer Lunt Large Cap Alternator ETF (ALTL) is an index ETF that aims to alternate between high beta and low volatility stocks listed in the S&P 500 Index.

The high beta index is an index made up of stocks that are most sensitive to changes in market returns. The Low Volatility Index is an index made up of stocks with price volatility below the overall market average. The Lunt Capital US Large Cap Equity Rotation Index uses a rules-based strategy to alternate between high beta and low volatility factors.

Investors looking for income in this lower yielding environment for longer can also look to a unique dividend-focused ETF: the ETF Pacer Metaurus US Large Cap Dividend Multiplier 400 (QDPL), which aims to provide cash distributions equal to 400% of the S&P 500 dividend yield in exchange for slightly lower exposure to the S&P 500 price yield.

QDPL separates the S&P 500 into its two yield components: dividend cash flow and price appreciation / depreciation. The fund then reduces the exposure to stocks in the S&P 500 Index to around 88% and uses the remaining percentage to buy dividend futures for 4 times the dividend participation. Finally, the strategy recombines the constituents in new ratios to produce exposure to the S&P 500 with a 4x dividend yield and approximately 88% exposure to the S&P 500 Index.

Financial advisers who want to learn more about managing risk in today’s marketplace can watch the webcast here on demand.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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