Displaying items by tag: volatility

In early 2025, target date fund (TDF) investors experienced a setback as U.S. stock markets declined sharply, with a 12% year-to-date loss driven by tariffs and fears of a market correction. For years, diversification beyond U.S. equities hurt performance, but that trend reversed as global factors began to weigh on domestic markets. 

The SMART TDF Index, which models ideal TDF allocations with better risk management, has outperformed the industry standard, revealing that most TDFs are overexposed to risky U.S. assets. April’s turbulence, sparked by the April 2 “Liberation Day” tariffs and further losses in the S&P 500, has intensified concerns about sequence-of-return risk, especially for those nearing retirement. 

Despite historical lessons and available low-risk alternatives like the SMART Index and TSP, most TDFs remain unprepared for prolonged downturns. 

Finsum: With fear dominating investor sentiment, now may be the time to rethink how TDFs protect retirement savers.

Low-volatility ETFs are proving their worth during the current market downturn, outperforming broad benchmarks like the S&P 500. Funds like iShares USMV and Invesco SPLV are both up over 3% year-to-date, even as the Vanguard S&P 500 ETF (VOO) is down nearly 5%. 

Despite their performance, these ETFs haven't attracted significant inflows, overshadowed by trendier buffered and defined-outcome products that rely on complex options strategies. Low-volatility ETFs, by contrast, use a simpler factor-investing approach and tend to come with lower fees, making them more cost-efficient. 

While they can underperform during strong bull markets, their resilience shines when equities struggle, as seen during major drawdowns in 2022 and 2018. 

Finsum: Advisors still value them for clients seeking steadier returns in uncertain conditions, especially as bonds show increasing volatility themselves.

As market volatility rattles investors, many are turning to “buffer” ETFs—funds that trade off some upside potential in exchange for protection against downside risk. These ETFs, which use options strategies to cap losses while limiting gains, have drawn $4.7 billion in inflows so far this year, with a notable $140 million coming in on the S&P 500’s worst day of 2024. 

Financial advisors are increasingly adopting them to reassure clients and keep them invested during turbulent times, especially as traditional stock valuations remain high. The appeal lies in downside protection, though investors must accept lower upside caps and higher fees—some charging more than ten times what plain index ETFs do. 

Assets in buffer ETFs surged to $64 billion by February, up from $38 billion at the end of 2023, as their defensive qualities grow more attractive in an uncertain economic and political climate. 

Finsum: Some advisors warn against overcommitting, reminding investors to balance protection with realistic expectations about long-term growth and costs.

Hedge funds saw mixed results in February as market volatility surged amid trade tariff uncertainties. Fixed-income strategies performed well, benefiting from falling interest rates, while macro and equity hedge funds struggled due to sharp declines in technology stocks. 

The HFRI Fund Weighted Composite Index fell 0.47%, with relative value arbitrage and event-driven strategies posting gains that were outweighed by broader declines. Cryptocurrency funds took a significant hit, with the HFR Cryptocurrency Index dropping 16.8% as volatility spiked. 

Meanwhile, event-driven funds gained modestly, and fixed-income strategies extended their winning streak, marking another month of positive returns. 

Finsum: As hedge funds navigate volatile conditions, their ability to adapt remains key to delivering returns in uncertain markets.

With the U.S. presidential election approaching, markets are anticipating potential volatility, and investors are weighing where to allocate their money. While some hedge funds are positioning for “Trump trades,” U.S. Global Investors instead sees growing opportunities in alternative assets like gold and Bitcoin. 

Paul Tudor Jones shares this perspective, highlighting these assets as hedges against rising U.S. debt and inflation concerns. The national debt has reached unsustainable levels, doubling its GDP ratio over 25 years, and the federal deficit continues to climb. 

As inflation impacts traditional assets, commodities like gold, silver, and Bitcoin have become more attractive as they tend to perform well in inflationary environments. 

Finsum: Despite election-related uncertainties, holding alternative assets may help investors maintain portfolio stability in the long run.