Top 5 ways to protect portfolio from correction

Published Thu, Mar 26 201510:53 AM EDT

While the S & P 500 is down less than 3 percent from its high last week, investors are still bracing for bigger declines ahead amid the rapidly changing macroeconomic conditions in the market. "What's most concerning is that nobody can put their finger on the reason for the decline," said Bran Kelly of hedge fund BKCM. "This makes the market vulnerable to a disorderly drop. Typically an event precedes a big market move and market participants can estimate the economic impact which places a supportive bid into the market. In this case, with nothing to point to, market participants are forced to sell first and figure it out later." Kelly likes government bonds here and crude oil. "I would point out that there are some major trends which have been in force for months showing signs of changing," said Jim Paulsen of Wells Capital Management. It's "producing some indigestion among investors." Here are some plays to cure your indigestion. CNBC Pro, using the quantitative tool Kensho, looked at which assets outperformed during the 21 times in the last 10 years the S & P 500 lost more than 5 percent over a five day period. A top performer is the iShares 20+ Year Treasury Bond ETF (TLT), which invests in Treasurys with longer maturities. The ETF increased, on average, 4 percent during these periods of stock market weakness. The iShares iBoxx Investment Grade Corporate Bond ETF (LQD), which tracks the investment-grade corporate bond market, rose just 1 percent, on average, during these periods, but was very consistent in its performance as it was positive during all 21 of these sell-off periods. After those two securities, the pickings are pretty slim. But if one wants to take a more aggressive strategy, more opportunities arise. The ProShares UltraShort S & P 500 (SDS), which tracks two times the inverse daily return of the S & P 500, is up 5 percent this week. The Direxion Daily Gold Miners Bull 3x Shares (NUGT), which tracks three times the daily return of gold mining stocks, is up 7 percent as investors flow into the precious metal for safety. And if one isn't sure where the market is headed, but agree with Kelly and Paulsen that uncertainty is here to say, the iPath S & P 500 VIX Short-Term Futures ETN (VXX) would look attractive. It tracks the performance of the CBOE volatility Index, the so-called fear guage. Be careful with these leveraged ETFs however. They sometimes have high expense fees and can also turn against you on a dime.

A trader works on the floor of the New York Stock Exchange.

Adam Jeffery | CNBC

While the S&P 500 is down less than 3 percent from its high last week, investors are still bracing for bigger declines ahead amid the rapidly changing macroeconomic conditions in the market.