How to use ETFs to hedge against market volatility

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An ETF expert says that investors can hedge against market swings by focusing on ETFs that specifically target lower volatility stocks.

“The time-honored answer would be diversify, diversify, diversify,” Dave Nadig, ETF.com Managing Director, told Yahoo Finance’s “The Ticker.” Nadig points out funds like the iShares Edge MSCI Min Vol USA ETF (USMV) and Invesco S&P 500 Low Volatility ETF (SPLV) that can limit downside risk amid recent market turbulence.

Low-volatility ETFs are in focus amid recent market turbulence.
Low-volatility ETFs are in focus amid recent market turbulence.

“Both of them have actually done much better than the broad U.S. market over the last year. They do what they say they’re going to do. When we have drawdowns like we saw in the fourth quarter of last year — they keep you out of trouble a little bit,” said Nadig.

And many investors are embracing ETFs to weather potential storms. 61% of ETF investors predict market volatility will ramp up in the next six months and 44% plan on putting more money into exchange-traded funds as a result, according to a new study by Charles Schwab. The survey is comprised of 1,500 investors who have bought or sold an ETF within the last two years.

MVIN is an actively-managed fund that invests in low-volatility international stocks.
MVIN is an actively-managed fund that invests in low-volatility international stocks.

Nadig also highlights ETFs that give investors opportunities to diversify internationally, like the actively-managed Natixis Seeyond International Minimum Volatility ETF (MVIN). “While I’m usually an index nerd, here I think active management lets them take advantage of things, like these valuation discrepancies we see in some of the developed, but non-U.S. markets,” said Nadig.

McKenzie Stratigopoulos is a producer at Yahoo Finance. Follow her on Twitter: @McKenzieBeehler

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