Home etftrends.com Fed Testimony Warrants Use of Smart Beta Strategies

Fed Testimony Warrants Use of Smart Beta Strategies

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As Federal Reserve chairman Jerome Powell is set to appear before Congress on Wednesday and Thursday, investors could see volatility return to the markets in a big way. As such, it’s necessary to brace for pending market oscillations with exchange-traded products (ETPs) that can shield investors against large drawdowns while at the same time, capture potential gains.

In the meantime, it will be a guessing game when it comes to interest rate policy and whether a rate cut will come sooner or later.

“There is no part of what he has to do over the next two days that does not resemble walking a tightrope over Niagara Falls,” said Julian Emanuel, chief equity and derivatives strategist at BTIG.

During the last Fed meeting when rates were kept steady, Powell hinted at potential cuts with risks looming, such as trade wars and slowing global growth.

“He’s going to do his best to play both sides. If you’re testifying in front of Congress, you don’t want to tell Congress: ‘Things are slowing down, and I’m going to cut, cut, cut,’” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “He’s going to tell Congress the economy’s good, but there’s some pockets, and he’ll play up the idea of an insurance cut. Congress is his boss. You don’t want to tell the boss you’re behind the curve, and the December rate hike was a mistake.”

However, investors don’t have to assume more risk in order to ferret out the most profitable opportunities. Smart beta strategies can help limit the downside in market drawdowns and capture gains when markets are in an upswing.

With the potential for volatility ahead, what ETPs are available in the marketplace that can address the concern for volatility risk while at the same time, realize any upward gains realized when markets rise? And what product can provide investors with the international exposure necessary for diversification?

One such product is the Natixis Seeyond International Minimum Volatility ETF (MVIN). MVIN focuses on developed markets and seeks to generate long-term capital appreciation with less volatility than typically experienced by international equity markets—the minimum volatility approach helps diminish portfolio risk.

MVIN gives investors:
• Less volatile approach to diversify internationally
• Long-term capital appreciation seeking less volatile international stocks
• Actively managed ETF with the ability to adapt over time

Even with U.S. equities rebounding from last year’s fourth-quarter tumult, it still makes sense to buy into a product like MVIN, which can provide investors with the duality of realizing gains during a market upswing and protect investors in a downturn.

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