Long/Short ETFs To Fight Market Crash

With volatility being the catchword now in the broader equity market, investors might be clueless about the future movement. There have been wild swings in Wall Street in the past few days. The latest round of selloff on Mar 11 was triggered by WHO as it declared the coronavirus outbreak a global pandemic. The disease has spread to more than 121,000 people globally.

To make the matter worse, President Trump enacted a month-long travel ban from Europe (except the United Kingdom) to contain the spread of the virus, dealing a major blow to global trade. Also, there was no mention of payroll tax cuts that markets were anticipating (read: Wall Street Rises on Trump's Stimulus: ETF & Stock Gainers).

The S&P 500, the Dow Jones, the Nasdaq Composite and the Russell 2000 lost about 4.9%, 5.9%, 4.7% and 6.4%, respectively, on Mar 11. About 90.5% issues (6972) on NYSE, Nasdaq and AMEX declined on Mar 11.

The Dow and the S&P 500 skidded into a bear market during the trading session on Mar 11, but only the Dow closed the day in official bear territory. The S&P 500 is now only 33 points away from the official bear status.

Previously, the S&P 500 was in the bear territory in late 2007, 2008 and early 2009 — during the peak of the Great Recession. In fact, the S&P 500 lost about 38.3% in 2008 crisis, triggered by the fall of Lehman Brothers in September.

Central banks around the world have been acting dovish with steep rate cuts and delivering dovish messages. However, no efforts are being able to contain the market crash. Against this backdrop, investors will likely remain edgy in the coming days.

Thus, to bypass the equity market weakness, investors may rev up their exposure to long/short ETFs. Below we highlight a few of these that have outperformed the S&P 500-based (ASX:SPY) (down 18.2%), the Dow Jones-based (TSXV:DIA) (down 19.3%) and the Nasdaq-100 based QQQ (down 15.9%) in the past month (as of Mar 11, 2020) (read: Shorting the S&P 500 with ETFs: What You Should Know).

AGFiQ US Market Neutral Anti-Beta Fund BTAL – Up 14.1% Past Month

The $164.4-million-fund follows the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index, which is a long / short market neutral index that is dollar-neutral. The expense ratio of the fund is 2.11% (read: ETF Strategies to Play the Rising Virus-Induced Volatility).

IQ Hedge Market Neutral Tracker ETF QMN – Down 4.6% Past Month

The underlying IQ Hedge Market Neutral Index typically invests in both long and short positions in asset classes while minimizing exposure to systematic risk. These strategies seek to have a zero-beta exposure to one or more systematic risk factors. However, the fund has a very small assert base of $14.4 million.

IQ Hedge Multi-Strategy Tracker ETF QAI – Down 6% Past Month

The underlying IQ Hedge Multi-Strategy Index seeks to replicate the risk-adjusted return characteristics of the collective hedge funds using various hedge fund investment styles, including long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets. The fund has an asset base of $813.6 million.

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