ETF Edge

Here's how retail investors are hedging against the market volatility

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How "retail" is reacting

The market volatility is leaving the pros and retail traders in a rut.

According to a recent American Association of Individual Investors investor sentiment survey, nearly 46% of retail investors are feeling bearish about the market. It's an increase of 16% from the average weekly numbers.

Investors are worried about rising interest rates, volatility and the Ukraine war, the group's vice president, Charles Rotblut, told CNBC's "ETF Edge" this week.

To hedge the risk, investors are leaning heavily on individual stocks and exchange-traded funds. Ninety-one percent of the group surveyed is holding stocks in their portfolio and 75% is invested in ETFs.

Investors typically use ETFs to invest more broadly in the market, but Rotblut is seeing investors take a more active approach with their holdings.

"They're mixing the trading strategies where part of the portfolio is probably more traditional, conservative allocation, but they're using the stock perhaps to be more aggressive or supplemental," he said in a Monday interview.

"They're tilting towards value and incorporating trading strategies, perhaps covered call options," Rotblut said.

During the coronavirus pandemic, the market plunged amid uncertainty but quickly recovered from its losses. Investors at the time poured into individual stocks. Now these same investors, having just seen a bull market, are looking to take some profit.

In the same interview, Andrew McOrmond, managing director at WallachBeth Capital, said the strategy works for traders looking to avoid overexposure to a single stock.

"They are going 'it's time to take single stock risk off the table and have some ETF allocations,'" McOrmond said. "That's where the growth comes from."

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