Alternative, buffer ETFs get a chance to shine

Certain ETFs that didn’t get a chance to shine during the longest bull market in history are finally getting their chance now.

In the midst of a market selloff, some ETFs have fared relatively well, according to a report from National Bank of Canada.

Low-volatility ETFs, for example, have outperformed their respective benchmarks by about 2% to 5% since the S&P/TSX composite index plummeted about 30% from its peak on Feb. 20.

“This may not seem like much given the losses that many equity investors are staring down, but it is still ‘outperformance,’” the report noted. 

Alternative ETFs, which employ long-short strategies, similar to a hedge fund, have also fared well. Since Feb. 20, the BMO S&P 500 Index ETF has lost 23%, but the CI Munro Alternative Global Growth ETF has lost only 11.2%.

Buffer ETFs, which are designed to protect against losses while also capping the upside, have outperformed the broad equity market by as much as 10%.

Safe-haven assets such as gold bullion ETFs and US dollar ETFs have performed well in 2020 so far. Gold bullion ETFs tend to work well in a low-interest environment, and exposure to the U.S. dollar is a natural hedge for Canadians who invest in the U.S. equity market because it has a “flight to safety” quality when assets are selling off, the report said. 

Conservative Portfolio ETFs have also escaped the worst of the market losses, since their fixed income allocations often fall between 50% and 80%. Long-term government bond ETFs also do well in bear markets, the report noted. 

While these ETF strategies have done relatively well so far this year, they may not continue to outperform if the market rebounds sharply, National Bank said.

Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for Advisor.ca since 2019.