An ETF That Provides Shelter From Stormy Markets

August and the first trading days of September for that matter have taught investors some harsh lessons in volatility. With exchange traded funds, investors have myriad options for reducing portfolio volatility, such as dedicated low and minimum volatility funds, but an active approach can also provide protection and profits.

The WBI Tactical Income Shares WBII, one of the fastest-growing actively managed ETFs in the U.S., aims to provide investors significant participation in bull markets while protecting and preserving capital during market downturns. WBII, which recently celebrated its first anniversary, has been showing its mettle as market volatility has been on the rise since early August.

For the second quarter and third quarter through Aug. 25, WBII “produced a total net return of +0.39%, outpacing the U.S. equity market’s return of -8.94%, based on the total return of the S&P 500 Index. Risk protection is clearly shown by examining the daily returns as the U.S. equity market declined precipitously on Thursday, August 20 through Tuesday, August 25. The average daily protection provided during this four-day market stress-test was +2.44% excess return per day,” according to New Jersey-based WBI Investments. 

Low volatility is one of WBII's calling cards, but so is low correlations, meaning the ETF's active management allows it to shift asset classes when volatile markets call for reduced equity exposure. Said another way, WBII proved durable in weathering the recent market storm because as of Aug. 25, the ETF allocated over 84 percent of its weight to corporate bonds and U.S. government debt.

Entering Thursday, the ETF had a 17.6 percent weight to short-term Treasurys as well as positions in the Vanguard Intermediate-Term Corporate Bond ETF VCIT, the iShares 7-10 Year Treasury Bond ETF IEF and the iShares iBoxx $ High Yield Corporate Bond ETF HYG. WBII's top equity holdings currently are Teva Pharmaceuticals Ltd. TEVA and Altria Inc. MO. Those stocks combine for almost eight percent of WBII's weight, according to issuer data. 

“Low exposure to equities and larger exposures to more stable fixed income and cash allocations is plainly evident, and this conservative positioning contributed meaningfully to the risk reduction discussed earlier.  With 44% allocated to cash and government bonds and only 6% to equities, the fund was able to 'tame the bear' during this significant market dislocation through a conservative positioning, aiming for safety of capital,” notes WBI Investments.

WBII yields just over 1.12 percent, the result of the management team's efforts to reduce interest rate risk by focusing on shorter duration fare. The ETF has accumulated over $300 million in assets under management in just 13 months on the market.