© Andrew Angelov / Shutterstock.com
In this choppy market under President Trump’s second term, even risk-averse investors can dip into speculative ETFs for profitable trades. That is, if those investors pick their spots correctly.
I’m not necessarily in favor of short-term trading for everyone. Indeed, this is risky business, and the risk of major losses can be amplified by using some of the tools I’m going to highlight here. That said, for investors who are interested in playing near-term trends, here are three trading ETFs which can be useful in certain scenarios.
Invesco S&P 500 Low Volatility ETF (SPLV)
The Invesco S&P 500 Low Volatility ETF (SPLV) is an intriguing ETF option for those looking to play a decline in volatility over short-term time frames.
This ETF is structured by selecting the top 100 least-volatile S&P 500 stocks, weighted inversely to volatility, delivering stability with punch. Impressively, this ETF’s Sharpe ratio of 0.74 reflects strong risk-adjusted returns, far better than broader market funds. That’s all the while this fund’s assets under management recently topped $7.8 billion. In other words, this low-volatility trade is one that’s getting crowded, but it doesn’t mean this trade is far from over.
Now, this ETF does carry a relatively high expense ratio of 0.25%. That said, I do think the fund’s dividend yield above 2% and its strong historical returns should provide investors seeking ballast with a reason to own this stock here. For traders looking to play defensive rallies when the VIX spikes, that goes double for them.
I think the fund’s double-digit annual returns since inception (outperforming during past downturns) is notable, given the environment we’re in right now. With uncertainty picking up, this is a top trading ETF I think is worth adding here.
ProShares UltraPro S&P 500 (UPRO)
ProShares UltraPro S&P 500 (UPRO) provides essentially 3x leveraged upside to daily S&P 500 returns. As an ultra-leveraged ETF, there’s obviously much more risk with holding this fund (particularly on days like Monday, where we saw a steep selloff proliferate this week). That said, speculative firepower for confirmed uptrends that even conservatives can time.
Boasting a Sharpe ratio of 0.80 over long horizons, it beats unlevered peers when deployed right. Now, this is a relatively small fund with around $4 billion in AUM, but traders do still get the benefit of tight spreads, which is what I like to see. If we do see this low-volatility phase continue in the market (typical of post-election periods), this fund’s stability and long-term upside could come into focus, assuming we get back to a risk-on bull market trend at some point this year.
For risk-averse traders, I think this is an ETF that may be best avoided, outside of face-ripping rallies as a way to offset certain portfolio hedges. That said, for traders looking to take the other side of the bet on economic growth continuing to remain strong this year, UPRO is a compelling tool to be considered in one’s tool belt.
ProShares Short VIX Short-Term Futures ETF (SVXY)
ProShares Short VIX Short-Term Futures ETF (SVXY) delivers another corollary to UPRO, providing -0.5x inverse exposure to short-term VIX futures. In layman’s terms, what this means is investors in SVXY can profit in the near-term from market calm, a speculator’s dream in low-fear eras. Its Sharpe ratio around 0.56 underscores efficiency, with strong three-month returns outside of the recent dips we’ve seen in the market.
For investors who expect volatility to calm down (once we know more about the duration and impact of the ongoing tensions in the Middle East), I think SVXY can be a compelling option for those looking to hedge any short bets they may have put on lately. With a strong 18% annualized return over the past three years (which have benefited from declining vol), this is a unique option that should only be considered by those who know how to track volatility trends over time.
Personally, these ETFs aren’t for me, but I do think they provide utility to a range of investors with different goals.