If we broaden our list of choices to include the possible application of a tactical shorting strategy using ETFs that represent some of the most vulnerable market sectors mentioned above, or using ETFs that are structured to provide inverse exposure to the broad market, the possibility of outperforming during equity sell-offs increases.
However, to capture market outperformance with either of these approaches, investors would have to be reasonably accurate with their market timing—a practice we believe should come with the warning label: “Don't try this at home.”
And let's not forget the simplest option for investors who want to be defensive but are less than confident about their market-timing skills: cash or ultra-short-cash-alternative ETFs such as the AdvisorShares Sage Core Reserves ETF (HOLD). (Full disclosure: Sage’s name is on the security because we are the subadvisor.)
Provided investors have the flexibility to hold cash, and are willing to forgo the possibility of making money for short periods, a good option may be to exit the markets altogether until volatility subsides.
Though few investors can accurately predict when market corrections will take place, they can keep a short list of strategies to help them get defensive.
Sage, an independent investment management firm, serves institutional and private clients with traditional fixed-income asset management and global tactical ETF strategies. Sage began using ETFs in 1998, and today offers a range of tactical all-ETF solutions, including income-focused and target-risk global allocation strategies. Contact Sage at 512-327-3330 or sageadvisory.com.