HEQT: Very Robust 2024, But Equities Are Now Expensive (Rating Downgrade)

2025-01-05 22:29:16 ET

Summary

• HEQT, a collar strategy ETF, delivered a 20% return in the past year but is now rated 'Hold' due to high S&P 500 P/E ratios.
• Collar funds like HEQT hedge the downside by selling call options and buying put spreads, capturing 60%-80% of the index's upside and minimizing losses during downturns.
• HEQT's laddered rolling collar strategy outperforms peers like PJAN in up markets but carries a higher risk and reward.
• With current P/E levels near historic highs, equities are expensive; thus, holding HEQT is prudent while waiting for a better entry point.

Thesis

The innocuous dichotomy in the title refers to an exchange-traded fund which has delivered in the past year, but where the main risk factor has reached overpriced levels. Let us explain. We last covered the Simplify Hedged Equity ETF ( HEQT ) last year, when we assigned the fund a 'Buy' rating:

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