Questionable valuations in large-cap tech, namely those spending heavily on artificial intelligence (AI), is bringing volatility back to the markets. The CBOE Volatility Index (VIX) has risen close to 50% from the middle of August to the middle of November. That brings ETFs that offer downside protection to the fore. One to consider is the Fidelity Hedged Equity ETF (FHEQ ).
Benchmarked to the S&P 500, the fund employs an options-based strategy that utilizes rules-based quantitative analysis of historical valuation, growth, profitability, and other factors for stock selection. Per the fund description, FHEQ uses a disciplined options-based strategy. That strategy ultimately provides investors with downside protection in certain market conditions. Tariffs, interest rate policy, geopolitical tensions, and other systematic risks are affecting the markets. Therefore, it’s imperative to have a protective component like FHEQ.
Furthermore, the fund can still participate in a market trending higher. Indeed, it captures upside while also protecting from the downside. At 48 basis points, it’s a worthwhile consideration for investor seeking cost-effective downside protection with the structural benefits of an active ETF wrapper.
An Options-Based Strategy Primer
Investors who are hesitant to allocate to a fund using an options-based strategy can benefit from additional education. Given that, TMX VettaFi Investment Strategist Cinthia Murphy spoke with Fidelity Investments VP/Head of ETF Strategists Craig Ebeling and Investment Product Group Director Rob Mouritsen in a webinar: Unlock Opportunities with Options-Based ETFs. Both Ebeling and Mouritsen dispelled the myths surrounding options-based ETF products by offering a quick primer on their strategies.
“For a lot of our clients, it’s very outcome-oriented,” Ebeling said. “They have problems or scenarios they’re looking to solve for whether that be changing interest rates, volatility in the market, downside they’re trying to protect against," he added. "There’s a simple, math-based approach that you can use options to solve for those different scenarios.”
“These options-based strategies, whether it’s ours or others, have that opportunity to keep clients invested through different market cycles, adding some downside protection or some volatility reduction, [and can] be a source of income for clients with a changing interest rate environment,” Ebeling added.
Click here to view the webinar to learn more about options-based strategies.
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Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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