The S&P 500’s drop of more than 4% last week is not unusual. In the current quarter alone, the large-cap index has moved by the same amount seven times. How are professional investors trading amid such volatility, and what are they buying? Hedging Bets Speaking to CNBC “Pro Talks,” SVM Asset Management’s Chief Investment Officer Neil Veitch said he manages risk by being open to any strategy that offers “best returns.” According to Veitch, an option on a “very, very short-term” basis is an inverse volatility ETF (exchange-traded fund). These ETFs, such as the ProShares Short VIX Short-Term ETF and the Short VIX Futures ETF, allow investors to bet on a stable market during volatile times. This is done by effectively shorting the VIX, a measure of volatility expectations based on S&P 500 index options. Some ETFs even use leverage or debt to boost returns. Veitch, who manages around £200 million ($213 million) across three funds, also recommends another option to protect equities over the medium term: US Treasuries. Historically, bond prices have generally tended to rise when stocks fell. They are considered safer than owning stocks. “Owning a two-year U.S. Treasury at 4% is as good a place as any of your cash at this particular moment,” he added. Rising inflation pushed interest rates, or yields, on short-term US government debt to 4.13% from 0.76% at the start of the year. Veitch believes the market is now reacting to the “increasingly hawkish rhetoric” of the Federal Reserve and other central banks as they try to tame inflation. “The path of inflation and how central banks react to it determine the path of the market in the short and short and medium term,” he said. Finding Value If that’s the environment, how does Veitch find value in stocks, and what is he buying? The chief investment officer pointed to a handful of stocks that have been “hit” by concerns about consumer confidence. “With stocks falling and in many cases 50%, they are starting to become more attractive,” said Veitch, who also manages the SVM World Equity Fund. Micron Veitch revealed that he sold off his stake in chip maker Micron Technology earlier this year. Shares of the semiconductor company have fallen 48% to $50 since January. The fund manager said the stock would be “interesting” if it fell to around $40 per share in the future. “I doubt that the next earnings update from Micron will be poor,” he said. “It will be interesting to see how the market reacts if stocks fall sharply. I expect that sell-off to be bought.” JD Sports Veitch says JD Sports, a London-listed global sportswear retailer, has a “very interesting medium-term story” as the company is expanding into the US and Europe by targeting target the “premium” segment. The Manchester, UK-based company, which operates more than 2,000 stores across 19 countries, has seen its shares drop more than 50% since its recent peak last November. SVM’s UK Growth Fund has allocated 2.8% of its portfolio to JD Sports. The fund manager thinks a select number of retail stocks are likely to rise next year if inflation declines significantly. “There’s no point in just selecting retailers across the board. We have to try and understand what the mid-term dynamics are, what their long-term earnings potential is,” he added.