Many retail traders often look longingly to the world of hedge funds and active portfolio management, wishing that they too had the same level of sophistication in their approach to the financial markets. As you'll read about in the paragraphs below, the rise in the popularity of niche exchange-traded products is now opening doors to investment strategies and products that have traditionally seemed out of reach to average investors.
JPMorgan Diversified Alternatives ETF (JPHF)
For those unfamiliar, the portfolio managers of the JPMorgan Diversified Alternatives ETF (JPHF) employ a rules-based approach to building a diversified portfolio of hedge fund strategies in a cost-effective manner. The fund seeks to offer the diversification benefits of complex strategies employed by hedge funds, including long/short, event driven and managed futures, without replicating an index.
Taking a look at the chart below, you can see that the price of the fund recently surpassed the resistance of an influential trendline, and it is interesting to note that it has also crossed above its 200-day moving average for the first time since early 2018. The recent rise in the price has also triggered a bullish crossover between the 50-day and 200-day moving averages known as the golden crossover. Followers of technical analysis usually use this bullish crossover to mark the beginning of a long-term uptrend. From a risk management perspective, traders will most likely set a tight stop loss below the 200-day moving average at $24.64 or swing low of $24.56, depending on risk tolerance.
Horizons S&P 500 Covered Call ETF
Another ETF that employs a strategy that is underused by retail investors is the Horizons S&P 500 Covered Call ETF (HSPX). As the name implies, managers of the fund follow a covered call, or buy-write, strategy in which the fund buys stocks in the S&P 500 index and sells corresponding call options on the same index.
Taking a look at the chart, you can see that it too has moved above the resistance of its 200-day moving average. The bullish price action over the past several weeks suggests that the bulls are in control of the momentum and that prices could be gearing up for a move higher. Stop-loss orders will most likely be placed below $46.77 or $46.64 in case of a sudden shift in market sentiment.
WisdomTree Europe Hedged Equity ETF (HEDJ)
Another relatively underfollowed ETF that may capture the interest of investors seeking an added level of sophistication to their portfolio is the WisdomTree Europe Hedged Equity Fund (HEDJ). This particular fund is often used by those seeking exposure to the broad Eurozone from dividend-paying companies with an exporter focus while also hedging exposure to fluctuations between the U.S. dollar and the euro.
Taking a look at the chart, you can see that the 50-day moving average is close to breaking above the 200-day moving average, which as discussed above is known as the golden crossover. Active traders may watch this development closely because a confirmed crossover could act as a catalyst for a move back toward the high notched earlier this month ($65.36).
The Bottom Line
Complex investment strategies that are often employed by hedge funds and other forms of active management are often out of reach for retail investors. However, as discussed above, with the rise in popularity of ETFs such as those mentioned, it is now possible for anyone to trade like a pro. Bullish price action over the past few trading sessions combined with clearly defined risk/reward setups suggest that now could be the ideal time to add some sophistication to your portfolio.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.