Stocks continue to drift sideways with an upward bias as cautious optimism surrounding the looming “fiscal cliff” has proven to be a dominant theme on Wall Street. Choppy trading has become the norm as mixed data releases have kept a lid on confidence, including lackluster ISM and factory orders data coupled with upbeat construction spending and weekly jobless claims. Amid the uncertain landscape, industry veteran PowerShares has debuted a “hands off” ETF that may provide a refuge from rampant volatility, offering exposure to the S&P 500 Index with a twist [Download How To Buy The Right ETF Every Time].
The PowerShares S&P 500 Downside Hedged Portfolio (PHDG) is designed to offer investors broad equity market exposure along with an implied volatility hedge. This new ETF uses a quantitative, rules-based methodology to dynamically allocate its notional investments among three components: equity, volatility and cash [see Low Volatility ETFdb Portfolio].
This new addition to the PowerShares lineup is intriguing, but far from unique. Investors can choose from a handful of ETPs that give them the flexibility to access the popular S&P 500 Index with a twist. In fact, PHDG is based on the same strategy as an existing ETN from Barclays iPath; the S&P VEQTOR ETN (VQT) is also linked to the S&P 500 Dynamic VEQTOR Total Return Index. However, this competitor charges 0.95% in expense fees versus PHDG’s price tag of only 0.39% [see also Finding The Best S&P 500 ETF].
PowerShares already offers the most popular S&P 500 ETF with a twist; the S&P 500 Low Volatility Portfolio (SPLV) has amassed an impressive $3 billion in assets under management since launching in mid-2011. This fund selects 100 stocks with the lowest realized volatility over the past year from the broad index. Other ETFs with a unique take on the well-known S&P benchmark include:
- Direxion S&P 500 Volatility Response Shares (VSPY): This ETF uses a quantitative strategy to shift exposure between the S&P 500 and cash depending on volatility conditions.
- PowerShares S&P 500 High Beta Portfolio (SPHB): This fund holds 100 stocks from the S&P 500 that are deemed to have the highest sensitivity to market movements over the past year.
- PowerShares S&P Value Line Timeless Select Portfolio (SPHQ): This fund selects stocks from the S&P 500 that are deemed to have strong long-term growth and stable earnings.
- UBS E-TRACS S&P 500 Gold Hedged Index (SPGH): This ETN is split 50/50 between long positions in the S&P 500 Index and gold futures contracts.
- Morgan Stanley S&P 500 Crude Oil Linked ETN (BARL): This ETN is split 50/50 between S&P Index futures and an equal-weighted combination of WTI and Brent Crude Oil futures contracts.
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Disclosure: No positions at time of writing.
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