Investors can use multifactor ETFs to safeguard portfolio gains achieved year to date.
U.S. equities fell sharply last month, ending the third quarter in the red. The benchmark S&P 500 posted its second consecutive month of broad declines, marking the first time the benchmark had fallen in two consecutive months this year.
While many investors saw declines during the third quarter, broad benchmarks are still up year to date. If investors anticipate the down market will continue, investors may want to position portfolios more defensively to safeguard the gains achieved.
“The last three months have been a reminder that stocks can go down not just up in 2023. Multifactor ETFs that seek out high quality companies with low valuation can be a strong alternative to a traditional market-cap-weighted approach,” said Todd Rosenbluth, head of research at VettaFi.
Adding exposure to multifactor ETFs may be a solution for positioning portfolios more defensively. By allocating to a strategy targeting value stocks exhibiting lower volatility, investors can limit some of their downside risk and maintain desired equity exposure during chopping markets.
Multifactor ETFs to Consider
A multifactor ETF to consider to still participate in the U.S. equity market is the Hartford Multifactor US Equity ETF (ROUS ). To mitigate volatility in the international sleeve of a portfolio, the Hartford Multifactor Emerging Markets ETF (ROAM ) may be worth consideration.
Multifactor ETFs like ROUS and ROAM seek to target desired return-enhancing factors and reduce exposure to unrewarded risk exposures. Both funds are designed to offer 15% less volatility than traditional cap-weighted indexes over a full market cycle.
ROUS is a defensive value ETF, aiming to provide more balanced exposure to U.S. large-caps while also dampening volatility compared to benchmarks. Notably, about 75% of ROUS’ holdings demonstrate lower volatility than the Russell 1000 Index.
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