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Managed-Risk ETFs for the Uncertain Road Ahead

Sponsored by Transamerica

Over the past 15 months, we’ve seen a return of market volatility. The S&P 500 suffered its first down year in 2018 since 2008, including a loss of over 13.5% during the fourth quarter. The index was up about 13.5% year-to-date as of mid-March. This volatility can be attributed to a number of causes including international trade concerns, rising interest rates and political uncertainties. One thing that is clear, after a recent hiatus, risk is back on the minds of investors including many of your clients.

While one year shouldn’t dictate a change in your client’s investment strategy, the volatility in 2018 and early 2019 might give you pause as you help them plan for the road ahead. At what point does short-term market volatility turn into a longer-term trend?

Transamerica’s DeltaShares®, launched in August of 2017, are a series of managed-risk ETFs specifically designed to help investors and advisors manage the dilemma of protecting themselves against longer term declines in the market, while still providing the opportunity for upside participation when markets are rising. 

These ETFs invest in three broad asset classes – stocks, 5-year Treasury Bonds and T-bills. However, there is much more than just diversification at work. Using a rules-based strategy, each fund dynamically adjusts the composition of those assets based on current market and portfolio volatility trends. 

Since there has historically been an inverse correlation between market volatility and stock returns, the DeltaShares® ETFs will look to allocate toward stocks when volatility is falling or remains low, and to allocate away from stocks when volatility is rising or remains high. By doing so, over the long term these ETFs seek to provide for meaningful equity participation in rising markets with mitigated downside risk in extended falling ones.

Smart beta approach

DeltaShares® ETFs employ a smart beta, rules-based approach. They start with several popular market cap weighted indices – S&P 500, S&P Midcap 400, S&P Small Cap 600 and the S&P EPAC Ex Korea LargeMidCap Indices. They then applied a set of rules to develop proprietary benchmarks for the funds with the objective of offering a set of ETFs that help investors manage risk while still taking advantage of the upside potential offered by these asset classes.

Key asset classes

DeltaShares® ETFs covers key domestic and international equity asset classes.

  • DeltaShares® S&P 500 Managed Risk ETF (NYSE: DMRL). This ETF tracks the S&P 500® Managed Risk 2.0 Index, which is designed to measure U.S. large-cap equities using a managed risk strategy seeking to limit losses and capture the upside in rising markets.
  • DeltaShares® S&P 400 Managed Risk ETF (NYSE: DMRM). This ETF tracks the S&P 400® Managed Risk 2.0 Index, which is designed to measure U.S. mid-cap equities using a managed risk strategy seeking to limit losses and capture the upside in rising markets.
  • DeltaShares® S&P 600 Managed Risk ETF (NYSE: DMRS). This ETF tracks the S&P 600® Managed Risk 2.0 Index, which is designed to measure U.S. small-cap equities using a managed risk strategy seeking to limit losses and capture the upside in rising markets.
  • DeltaShares® S&P International Managed Risk ETF (NYSE: DMRI). This ETF tracks the S&P EPAC Ex. Korea LargeMidCap Managed Risk 2.0 Index, which offers broad international developed markets equity exposure using a managed risk strategy seeking to limit losses and capture the upside in rising markets.

Transamerica has also recently launched the DeltaShares® S&P EM 100 & Managed Risk ETF utilizing the S&P EM 100 index.  

According to Transamerica’s chief investment officer Tom Wald, “With the DeltaShares® ETFs, we aim to help investors participate in rising equity markets in order to meet retirement goals and fund liabilities, while potentially reducing downside risk during falling markets.

Transamerica DeltaShares® ETFs might be the right product at the right time to help your clients meet their goals while managing risk. To learn more, visit the DeltaShares® website. https://www.DeltaShares.com/

Source | easywealth.fun

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