Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

The vast majority of retail client accounts lose money when trading CFDs.

You should consider whether you can afford to take the high risk of losing your money.

Important Notice - Fraud awareness
Important Notice - Scam alert
54.76% of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 54.76% of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
ATFX

FCA License No: 760555

ATFX-search-icon
Client Portal
Start trading
rch

Prime ETF for Investors To Hedge the Plunge in US Stocks

Recently, the performance of the US stock market has been dismal. Market giants have announced weak Q1 financial results, affected by high inflation. The two major U.S. retail giants, Target and Walmart, have thundered lower, which immediately triggered a wave of selling in retail stocks. As a result, the US stock market has plummeted across the board.

Since April, risk aversion has dominated the market, and equity ETFs have inevitably suffered, ending the record for sustained net inflows. So, how should equity ETF investors adjust their portfolios to minimise risk in an environment of sharp market volatility?

The US stock market has had a thrilling week.

US stocks have experienced a thrilling week, plunging again after a brief rally, with the NASDAQ and S&P 500 falling between 4% and 5%. The Dow also tumbled 1164.52 points, down nearly 4%.

The widespread decline is still due to market panic caused by the record-high inflation, especially the considerable impact of high inflation on the retail industry, which has started showing.  On the one hand, retail companies face the pressure of high inventory and high operating costs. But on the other hand, high inflation has also hit consumer spending.

Walmart’s results fell short of market expectations in Q1 after its financial report showed a net profit of $2.05 billion, down 25% year-on-year. Another retail giant, Target, had a net profit of $1.009 billion, a sharp decline of 51.9% year on year. The Q1 performance of the two giants triggered a sharp decline in retail stock prices and a wave of selling, dragging the entire market lower.

Which ETFs Are Still Favoured by the Market?

In fact, since April, the volatility witnessed in the US stock market has increased. Risk aversion has driven investors to flee the market because of wide speculation about the effect of significant central bank tightening on the economy. Many expected the Fed’s efforts to stabilise inflation would gradually appear in the year's second half. The negative impact of inflation on the stock market may continue in the short term.

Affected by the downturn in the broader market, the performance of equity ETFs conducive to diversification has also been affected. However, there are still some ETFs that have fared much better than the market. According to the latest report from State Street Global Advisors, US ETF funds had a net outflow of $10.5 billion in April. The net outflows from global equity ETFs ended a 34-month net inflow record. US ETFs took in a whopping $1.8 trillion during this period.

In the most recent week, ETF equity net outflows were $6,142 million. Despite US stocks' high volatility, they still received net inflows of US$2.816 billion. Japan and the Asia Pacific also received net inflows of US$730 million and US$157 million. Significant net outflows of global equity ETFs were US$3.812 billion.

Given the current economic situation, we face more significant uncertainty, and the stock market's volatility has intensified. Therefore, investors should adjust their asset allocation to equity ETFs promptly. In the first four months of this year, energy ETFs performed the best. Still, due to the great uncertainty of the Russo-Ukrainian war, the energy sector may face corrections in the future once the war is over.

Investors should focus on ETF products that are immune to business cycle inflation and are value-oriented, including infrastructure, the utility industry, natural resource industry ETFs, etc. In addition, ETFs focused on the theme of carbon neutrality, green energy & electricity, sustainable long-term investments are also expected to generate positive performance in the future.

Notably, fixed income ETFs netted about $8.4 billion in April, driven by ultra short-term government bond ETFs. Several countries are currently adopting tighter monetary policies to combat inflation in an environment where interest rate trends are much more volatile. Therefore, appropriate allocation to some investment-grade corporate bonds and ETFs with stable coupons could reduce the overall portfolio volatility and achieve a hedging effect.

Last Updated: 20/05/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

Recent news

Recent news
GBPUSD turns bearish ahead of GDP report

GBPUSD started the week at $1.227, and has fully reversed its bullish trend. The bulls qui...

Recent news
Gold (XAUUSD) prices face rejection at $1807

The precious metal gold faced some rejection after reaching $1,807 on Wednesday, following...

Recent news
US dollar slides downwards amidst July CPI cool down

July's Consumer Price Index (CPI) came out lower. The US dollar dominance in the forex mar...

Recent news
Bitcoin prices jump above $24K as US inflation cools down

The crypto market witnessed a strong bounce yesterday. Bitcoin (BTCUSD) prices led the way...

Recent news
USDCAD holds above $1.2884 as market awaits for US CPI

USDCAD has sustained above its support level of $1.2884 from yesterday. The price is seen ...