Last week’s drop of more than 4% in the S & P 500 was not unusual. In the current quarter alone, the large-cap index has moved by a similar amount seven times. How do professional investors trade in the midst of such volatility and what do they buy? Hedging bets Speaking on CNBC’s “Pro Talks,” Chief Investment Officer Neil Veitch of SVM Asset Management said he manages risk by being open to whatever strategy offers the “best return.” One option on a “very, very short-term” basis, according to Veitch, is an inverse volatility ETF (exchange-traded fund). These ETFs, such as the ProShares Short VIX Short-Term Futures ETF and the Short VIX Futures ETF , allow investors to bet on a stable market during times of volatility. This is done by effectively shorting the VIX, a measure of volatility expectation based on S&P 500 index options. Some ETFs even use leverage or debt to amplify returns. Veitch, who manages about 200 million pounds ($213 million) across three funds, also suggests another option to hedge against stocks over the medium term: U.S. Treasuries. Historically, bond prices have tended to rise when stocks fall. They are considered safer than owning stocks. “Owning two-year US Treasuries at 4% is as good a place as any for your money at this particular time,” he added. The rampant inflation has driven the yield, or yield, on short-term U.S. government debt to 4.13% from 0.76% at the start of the year. Veitch believes the market is currently reacting to the “increasingly hawkish rhetoric” from the Federal Reserve and other central banks as they try to tame inflation. “The path of inflation and how central banks respond to it will determine the path of the market in the short and short to medium term,” he said. Finding value If it’s the environment, how does Veitch find value in stocks and what does he buy? The chief investment officer pointed to a handful of stocks that have been “hammered” by concerns over consumer confidence. “With stocks down and in many cases by 50%,” said Veitch, who also manages the SVM World Equity Fund, “they are starting to become more attractive.” Micron Veitch revealed that earlier this year he sold shares in chip maker Micron Technology. Shares of the semiconductor company have fallen 48% to $50 since January. The fund manager said the stock would be “interesting” if it falls to around $40 a share. share in the future. “I suspect the next earnings update from Micron will be bad,” he said. “It will be very interesting to see how the market reacts if stocks fell aggressively. I expect that sell-off to be bought.” JD Sports Veitch said London-listed JD Sports, a global sportswear retailer, had a “very interesting medium-term story” as the company expanded into the US and Europe by targeting the “premium” segment. The Manchester, England-headquartered retailer, which operates over 2,000 stores across 19 countries, has seen its stock fall more than 50% since its most recent peak in November last year. SVM’s UK Growth Fund has allocated 2.8% of its portfolio to JD Sports. The fund manager said select retail stocks were likely to rise next year if inflation fell meaningfully. “There’s no point in just picking retailers across the board. We need to try to understand what the medium-term dynamics are, what their long-term earnings potential is,” he added.