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Navigating stormy markets: playing offense on volatility

9 February 2016 in Hardeep's Thoughts

Financial markets have been off to a punishing start this year with the S&P 500 index down 9 percent since the first trading day of this year. Markets took a wild ride today taking an early beating before paring losses later in the day. The U.S market volatility index (VIX) hit a day high of nearly 28, a pretty rare event since the market began its bull run in 2009.

Last week, I wrote a blog posted to LinkedIn that looked at the Electronic Trading motif as an alternative to playing defense in markets wracked by big swings and turmoil. Rather than taking shelter from volatile markets, the Electronic Trading motif takes volatility head on. The stocks behind this motif are financial trading platforms and intermediaries such as NASDAQ and CBOE that should benefit from the higher trading volume seen in volatile markets.

As of today, this motif has generated 5 percent one-year return, outperforming the defensive motifs Low Beta (+0.4%) and Defensive Dividends (-3%). Notably in yesterday’s tumbling stock market, the Electronic Trading motif was up slightly (+0.4%), comparing favorably with Its defensive peers as the Low Beta motif was down (-0.3%), and the Defensive Dividends motif was flat (+0.1%).

Given its recent showing, the Electronic Trading motif has the potential to be a near-term bright spot. For more on this motif, check out my LinkedIn post and let me know how well you think the Electronic Trading motif can hold up in this environment.

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