With equity markets at or near all-time highs, the current economic expansion spanning the longest time-period in modern history, and US equity index valuations above their long-term averages, investors may rightly question whether it is prudent to invest in the stock market.
Individuals may fear that they are investing in the equity market at the top and be concerned about declines that may significantly decrease their wealth.
The Armor US Equity Index ETF (ARMR) may be an attractive option for individuals who are looking for a defensive equity strategy that seeks to lower equity market risk.
US Equity Market Near All-Time Highs On 12/31/19, the S&P 500 closed near its all-time high that it reached just a few days earlier. Since the bottom of the Great Financial Crisis (3/09), the S&P 500 has advanced nearly 500% through 12/31/19.
Aging Economic Expansion
As the chart below highlights, the current economic expansion, at 126 months as of the end of 2019, is the longest in modern history. Our research, using dates from the National Bureau of Economic Research (NBER), shows that since World War II, declines in the S&P 500 associated with recessions have averaged 31%.
We are not economists and are not trying to forecast a recession. However, one will likely occur in the future.
Equity Valuations Not Cheap
While not trading at extremes, equity valuations are above their long-term averages. For example, the price-earnings ratio (P/E) of the S&P 500 was over 24.5 at the end of 2019 versus its long-term average of 15.8, according to multpl.com. The index’s price to book ratio (P/B) was 3.7 at the end of 2019 versus its long-term average of 2.8.
All of these factors may make the US equity markets vulnerable to downside risks.
How may investors gain exposure to US equity indices with potentially lower equity market risk and volatility?
Introducing the Armor US Equity Index ETF (ARMR)
The Armor US Equity Index ETF (ARMR) seeks to provide investment returns that, before fees and expenses, correspond generally to the total return performance of the Armor US Equity Index. The index is designed to provide exposure to the sectors of the US equity markets that the fund’s index provider believes are most likely to generate positive returns while providing downside protection and experiencing lower volatility than the S&P 500.
The fund looks to provide exposure to the stock market while focusing on investment risk reduction or mitigation.
Sector ETFs are utilized to gain equity sector exposure.
We believe that fear of equity market declines should not prevent individuals from investing in the stock market. However, we believe that investors should allocate at least a portion of their portfolios to a defensive equity strategy which has the potential to reduce equity market risk and volatility.
ARMR may be an attractive vehicle for individuals seeking a defensive equity strategy.