Rethinking Risk Management: A New Approach to ETF Investing
Investors seeking to navigate the ups and downs of the market may soon have a new tool at their disposal. Ben Fulton, CEO of WEBs Investments, has developed a novel approach to exchange-traded funds (ETFs) that aims to limit downside losses while capping upside performance.
A Smoother Ride for Investors
Fulton’s WEBs Defined Volatility SPY ETF (DVSP) and WEBs Defined Volatility QQQ ETF (DVQQ) began trading last week, offering a fresh take on traditional buffer ETFs. By targeting a level of volatility in line with the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ), these ETFs seek to provide a more stable environment for investors and financial advisors.
Volatility Management 2.0
Unlike traditional buffer ETFs, which rely on embedded guardrails, Fulton’s ETFs use a dynamic approach to manage volatility. By adding cash when volatility is high and increasing exposure to the underlying ETF by up to 200% when volatility is low, these funds aim to smooth out the investment experience. This strategy, back-tested since the 2008 financial crisis, has shown promise in reducing the peaks and valleys of market fluctuations.
A Thermostat for Your Portfolio
Fulton likens his approach to a thermostat, maintaining a consistent “temperature” within the portfolio regardless of external market conditions. By targeting average volatility levels, investors can enjoy a more predictable ride, without sacrificing potential upside.
A New Option for Risk-Averse Investors
The WEBs ETFs come with an 85-basis-point fee, a price Fulton believes is worth paying for the added stability. With more funds in the pipeline, investors may soon have a range of options for managing risk without sacrificing performance. As Fulton notes, “You could use buffered ETFs and pay for downside protection with upside caps, or you could go with us and not have any caps.”
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