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Kensho Stats

These 3 ETFs could be winners if the Trump rally hits a speed bump

President Donald Trump (L), flanked by Vice President Mike Pence, takes the stage to deliver remarks at Homeland Security headquarters in Washington, U.S. January 25, 2017.
Jonathan Ernst | Reuters
President Donald Trump (L), flanked by Vice President Mike Pence, takes the stage to deliver remarks at Homeland Security headquarters in Washington, U.S. January 25, 2017.

One of the most volatile presidents in recent memory in terms of his rhetoric has led to one of the least volatile stock markets.

As we hang on every explosive tweet and controversial news briefing, the Dow Jones industrial average sailed through 20,000 on Wednesday and the CBOE Volatility Index — the market's so-called fear gauge — fell to its lowest level in 2 ½ years below 11.

"Trump's in the White House, so where's the volatility?" asked MKM Partners' Jim Strugger in a note this week.

"The VIX index is broken," lamented Brian Kelly of BKCM on Thursday morning.

"With the VIX threatening to go to a hat size, three-month protection is looking cheap across the board," wrote Michael Block, chief strategist at Rhino Trading Partners.

Just Thursday morning on CNBC, Jim Grant of Grant's Interest Rate Observer called Trump the very embodiment of "tail risk," meaning he's either going to be really, really good for the market or really, really bad. But it will be anything but a smooth ride.

If these folks and other strategists and traders are correct and a bumpy road is indeed ahead, there are certain ETFs that do well when volatility increases. Using hedge fund analytics tool Kensho, we looked at what happened to major ETFs when the VIX moved higher by 3 points in five days, something that's occurred more than 100 times in the last decade.




Be careful with the first security in the result, the ProShares Short S&P 500. That ETF uses derivatives to bet against the S&P 500 with its goal to equal the exact inverse of the benchmark's daily return. That's not for the faint of heart, especially during a period like this when the Trump market has mystified most experts in its serenity.

So when are things going to get bumpier?

MKM's Strugger found that lately the VIX tends to go through a shock every 4 ½ months.

"With the last (very moderate) risk event in November during the election, this metric projects out toward mid-March for a potential shock," Strugger wrote.



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