It’s certainly no understatement to say that this week was a tumultuous one for many U.S. tech companies. January 20, China startup DeepSeek showed off its newest AI models to the world. Notably, this included an AI model known as R1, which has similar aptitudes as ChatGPT.
Despite the similar capabilities of ChatGPT, R1 reportedly offers a distinct advantage over OpenAI’s product. According to DeepSeek, the company spent less than $6 million to build the computing power of R1. This stands in stark contrast to other Silicon Valley AI models, which often required billions in spending.
Once this revelation became widespread public knowledge, questions began surfacing over the valuation of tech stocks. Many chipmakers posted steep losses on Monday, including Nvidia, which ended the trading day down 17%.
Since January 27, accusations and headlines have been flung back and forth regarding DeepSeek’s operations, the value of tech stocks, and more. Regardless of what turns out to be true or false, there is one lesson investors should take away from this development: Nvidia is not a foolproof stock.
For well over a year now, many investors have bolstered their exposure to Nvidia, betting big on the company’s chipmaking dominance. However, this recent sell-off may have rattled the confidence of more than a few investors.
Hedged Equity ETFs Can Help You Stay Engaged
No one can say for certain how Nvidia and its peers will perform for the rest of the year. That said, investors who want to stay engaged in a risk-conscious manner may want to look at hedged equity ETFs.
True to their name, hedged equity funds offer distinct equity exposure with an added strategy to mitigate potential losses.
For example, take a look at the Parametric Hedged Equity ETF (PHEQ ). A large-cap strategy, its portfolio holds many of the leading names in U.S. tech. This includes Nvidia, Apple, and the other members of the Magnificent Seven.
PHEQ’s large-cap exposure comes with the crucial benefit of an option overlay strategy. Through the use of options, the fund can hedge its returns against potential bouts of market turmoil. As such, the fund works as a great tool for traders looking to participate in equity rallies while being mindful of volatility.
In the near term, the fund has offered highly competitive results compared to traditional equity indexes. As of January 30, 2024, PHEQ’s NAV has risen 4.81% over the last three months. These gains are slightly higher than that of the S&P 500 Index, which rose 4.78% in the same time period.
For more news, information, and analysis, visit The ETF Yield Channel.
