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Kensho Stats

These ETFs could pop if the Trump rally continues to lose steam

Evrim Aydin | Anadolu Agency | Getty Images

A measure of equity volatility is below historical norms, indicating investors may be getting too complacent about the Donald Trump rally.

If volatility does pick up, certain exchange-traded funds can still rise in that difficult environment, history shows.

The CBOE Volatility Index, or VIX, is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. It's sometimes called the "fear gauge."

CBOE VIX 5-year chart


Source: FactSet

The VIX is currently below 12, a level it hasn't stayed below for long since the bull market began.

"As I have been advocating for higher volatility I am starting to feel like the boy who cried wolf. Nonetheless, VIX will go higher short term friends that I have strong conviction on," Seaport Global's Roberto Friedlander wrote in a note to clients Thursday.

Friedlander said when the VIX fell 5 percent on back-to-back days such as the previous two days, it rallied 44 percent or more in the following month during the last three historical instances.

Using hedge fund analytics tool Kensho, we screened for the best-performing ETFs during periods where the VIX rose three points in five trading days during the last decade. A three-point rally would put the VIX near its 15.5 historical five-year average.

Here is what we found.



There are 114 instances of the VIX rising three points in five days during the last decade, according to Kensho.

Investors traditionally flock to the safety of U.S. government bond securities in times of market volatility. The iShares 20+ Year Treasury Bond ETF provides exposure to the Treasury debt market and was a top performer during the instances.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.