By Rajesh Cheruvu
Equity markets have corrected since their highs in October 2021, and traders have witnessed durations of heightened volatility induced by the Russia-Ukraine battle, red-hot inflation, rising rates of interest and financial tightening.
Investors involved about market downturns could discover alternatives by investing in ETFs to navigate such bear markets.
While selecting particular person shares could also be dangerous, there are a number of ETFs geared towards withstanding bear markets, which can be appropriate to an investor’s fashion and threat tolerance. ETFs have now grow to be a straightforward and most well-liked route for a lot of traders to take publicity to the inventory market, by not solely offering publicity to the broader market, but in addition permitting them to concentrate on particular sectors, themes, methods, and types as per their desire.
ETFs are a low-cost passive funding different for traders to take publicity to the fairness markets.
Volatility tends to spike throughout instances of market turmoil because of uncertainty relating to macroeconomic circumstances. During such bear markets, traders could go for Low-Volatility ETFs which have a tendency to achieve risky market environments. Stocks that make up Low-Volatility ETFs are these with comparatively decrease volatility, thereby limiting draw back threat throughout bear markets and cushioning portfolios.
Beta is a well-liked measure of volatility relative to the broader market, therefore an ETF with low Beta shares allow traders to keep up their fairness publicity whereas decreasing their publicity to the broader market’s volatility.
Dividend yielding shares sometimes outperform in environments of elevated inflation, therefore traders might do effectively in such environments by investing in ETFs with publicity to massive cap shares with increased dividend yields.
In earlier bear markets, these ETFs haven’t solely outperformed massive caps however the broader market as effectively. Stocks that are a part of such ETFs present steady dividends and are sometimes a part of the defensive sectors, which usually tend to stand up to financial downturns and heightened volatility in comparison with the cyclical sectors, thereby maximising yield and offering stability in portfolios.
Equal weighted massive cap ETFs are one other promising avenue for investments in bear markets, as massive market declines are usually adopted by a broad-based market rally, wherein equal weighted ETFs have outperformed traditionally.
These ETFs provide publicity to massive firms with an equal weight to every inventory, thereby decreasing inventory and sector focus threat. It gives an equal alternative to the tail shares of a market cap weighted index to carry out and contribute to the return throughout a secular rally capitalising on broad based mostly financial progress.
Since consumption is without doubt one of the central themes supporting India’s structural progress story, traders can search shelter in a Consumption thematic ETFs as effectively. They present traders with publicity to key sectors like shopper items and providers, vehicle, textiles, telecom and healthcare providers, and others which the place demand is mostly secular. India’s sizable younger inhabitants, rising earnings ranges, rising retail penetration, rising demand for luxurious/ branded merchandise are all supportive of India’s consumption sector, with large potential to develop additional.
Moreover, from an funding perspective, Consumption thematic ETFs have outperformed broader market indices in periods of great downturn, mitigating the draw back threat and volatility.
The above-mentioned ETFs could assist traders restrict the draw back of their portfolios together with the potential to outperform markets in a state of turmoil. However, a few of them could underperform as soon as markets begin gaining momentum. Hence, they should be used tactically to enhance the core portfolio which is aligned with the investor’s threat urge for food and general asset allocation. Investors also needs to keep away from making an attempt to time the market by making an attempt to catch the peaks and bottoms of the market and proceed common deployment through the SIP route to learn from the long-term compounding advantages of fairness markets.
(Author is Chief Investment Officer, Validus Wealth)
Source: www.financialexpress.com”