Advisors seeking to optimize client portfolios must strike a balance between growth potential and risk management. Traditional market-cap-weighted strategies provide broad exposure but often leave investors vulnerable to volatility. WEBs Defined Volatility QQQ ETF (ticker: DVQQ) offers an alternative—aiming to smooth the market ride while maintaining full participation in long-term equity growth.
DVQQ is part of WEBs Investments’ Defined Volatility℠ ETF series, created by exchange-traded fund (ETF) industry veteran Ben Fulton and backed by Westwood’s distribution and operational support. In an interview with The Wealth Advisor’s Scott Martin, Chris Doran, Head of ETF Distribution at Westwood, and Fulton, CEO of WEBs, discussed how DVQQ and its S&P 500-focused counterpart seek to redefine market exposure by dynamically adjusting based on volatility levels.
Why Defined Volatility Matters
Market swings are inevitable, but investor reactions to them often determine long-term outcomes. Fulton, a veteran in the ETF space, has seen firsthand how volatility can push investors to make poor timing decisions.
“The goal is to keep people invested in the market, and yet the problem is that human behavior makes us either fearful or greedy,” he says. “I don’t think it’s one or the other. I think we want both.”
Fulton highlights a common challenge—many investors chase returns when markets are high and panic when they fall. The DVQQ strategy is built to counteract those emotional investing behaviors. Instead of relying on static allocations, it adjusts exposure dynamically. When market volatility spikes above a 20% threshold, the fund reduces its exposure to the Nasdaq 100. Conversely, when volatility falls below 20%, it increases exposure—potentially up to 180%—creating the potential for investors to capitalize on stable market conditions while mitigating extreme downside risk.
The Mechanics Behind DVQQ
To achieve its defined volatility approach, DVQQ pairs direct exposure to the Nasdaq 100 with derivatives, specifically swaps. The derivative instruments allow the strategy to scale exposure efficiently without triggering frequent capital gains taxes or requiring large cash positions.
“We use a swap, and a swap married with the ETF allows us to be very efficient and, we feel, provide the most tax-efficient approach,” Fulton explains. “It’s not new science—it’s coupling old science with new ideas—that’s what we’re doing.”
The hybrid structure enables the strategy to respond dynamically to market conditions while maintaining cost efficiency. By integrating swaps, DVQQ sidesteps some of the inefficiencies and tax burdens that traditional leveraged strategies often carry.
A Smarter Way to Hold QQQ
Many advisors already use the SPDR S&P 500 ETF Trust (SPY) to track the S&P 500 and the Invesco QQQ ETF (QQQ) to gain exposure to the Nasdaq 100’s high-growth names. However, the volatility inherent in tech-heavy indices can make it difficult for clients to stay the course. Doran sees DVQQ as an evolution of a core Nasdaq 100 position, offering the same exposure but with a built-in mechanism to manage risk.
“Everyone knows what SPY is, and everyone knows what QQQ is—two great ETFs, great ways to get exposure to broader markets. What defined volatility allows you is an intuitive strategy,” Doran explains. “In volatile markets, when the volatility spikes up above 20%, we lean away from the market. When the markets are calm and go below that 20% long-term realized volatility, we lean in.”
This systematic approach applies a disciplined framework to market exposure. Instead of reacting to volatility with short-term trading decisions, DVQQ adjusts positioning based on predefined thresholds. By seeking an advantage with smoothed performance fluctuations, advisors might help their clients remain invested over the long term.
How Advisors Might Integrate DVQQ
For advisors accustomed to static allocations, incorporating DVQQ requires a shift in thinking. The strategy is not a short-term investment product or a hedging tool. Instead, DVQQ is designed for long-term core exposure, offering a disciplined method aiming to navigate volatile markets without requiring active trading decisions.
“This is not a trading vehicle,” Doran emphasizes. “There are some vehicles out there that have leverage in them. We don’t consider this a leveraged product. We’re simply riding the volatility.”
That distinction is crucial because it aims to address a fundamental problem with traditional leveraged products. Unlike leveraged ETFs, which can suffer from compounding effects and performance erosion over time, DVQQ adjusts its exposure in a measured and disciplined process, seeking a target volatility range rather than a fixed leverage ratio. The volatility-focused methodology aims to serve long-term investors seeking a more adaptive Nasdaq 100 allocation without the drawbacks of conventional leveraged products.
For advisors managing client emotions as much as portfolios, a defined volatility strategy may provide a way to keep clients invested without the need for constant reassurance during market downturns.
The volatility-based approach offers an opportunity to implement a risk-adjusted strategy without requiring direct derivatives expertise. By incorporating DVQQ, advisors may provide clients with Nasdaq 100 exposure while automatically adjusting risk levels based on market conditions. The hybrid structure helps reduce the need for constant intervention, allowing for a more hands-off, rules-based approach to volatility management.
Building on Momentum
As advisors and ETF strategists explore ways to manage volatility more effectively, DVQQ has gained early traction. Doran believes the strategy fills a clear gap in the market, providing a much-needed alternative to traditional static allocations.
“I’ve never in my career talked about a strategy with the excitement that we’ve received,” Doran says. “We have a lot of people, a lot of interest. There’s a lot of people watching this right now.”
Fulton echoes this sentiment, noting that major ETF strategists and RIAs have expressed strong interest in how DVQQ fits into model portfolios. Since the ETF complements rather than competes with existing Nasdaq 100 strategies, conversations with large issuers and asset managers have been promising.
“We’re talking with them because we are a long-term owner of their products,” Fulton says. “In some ways, we’re like a strategist wrapped in an ETF, and we’re managing a volatility level.”
The point is significant: rather than competing with established ETF providers, Westwood positions DVQQ as an enhancement layer that builds upon existing products. The collaborative approach allows advisors to maintain familiar benchmarks while gaining sophisticated volatility management—a value proposition that resonates strongly in today’s uncertain market.
The Future of Defined Volatility ETFs
Looking ahead, Westwood and WEBs Investments see defined volatility ETFs as a major area for future growth. While DVQQ and its S&P 500-focused counterpart are the first iterations, additional strategies are already in development. Advisors seeking ways to maintain client participation in equity markets while mitigating extreme risk may find these strategies to be valuable additions to their portfolios.
As markets remain uncertain, strategies that adapt to volatility rather than react to it may prove to be essential tools for long-term investors. By providing a systematic, disciplined approach to managing risk and return, DVQQ offers a potentially compelling case for advisors looking to optimize Nasdaq 100 exposure without increasing portfolio complexity.
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Disclosures
Investment involves risk, including possible loss of principal. There is no guarantee the funds will achieve their investment objectives and may not be suitable for all investors. No strategy can guarantee a profit or protect against a loss.
An investor should consider the investment objectives, risks, charges and expenses of the fund carefully before investing. A prospectus which contains this and other information about the fund may be obtained by calling (844) 455-9327 or by visiting the product page https://www.websinv.com/ and selecting a specific fund.
Distributor, Foreside Fund Services, LLC.
Chris Doran is Head of ETF Distribution at Westwood Holdings Group, Inc. Westwood manages $17B in assets as of 3/7/25.
For more information on QQQ, visit: https://www.invesco.com/qqq-etf/en/about.html.
For more information on SPY, visit: https://www.ssga.com/us/en/intermediary/etfs/spdr-sp-500-etf-trust-spy
WEBs Investments Inc. is unaffiliated with Scott Martin, The Wealth Advisor and PowerShares.
Definitions
Defined Volatility – Defined Volatility refers to rules-based investment strategy that seeks exposure to an underlying ETF while targeting an annual volatility level.
Derivative – A derivative is a financial contract whose value is based on, or derived from, the value of an underlying asset, index, or reference rate. Common types of derivatives include futures, options, and swaps. Derivatives may be used for hedging, speculation, or investment purposes. These instruments can involve risks, including leverage, market volatility, and potential loss of principal.
Swap – A swap is a financial contract in which two parties agree to exchange cash flows or other financial instruments based on predetermined terms. Common types of swaps include interest rate swaps, currency swaps, and total return swaps, which allow investors to manage risk or gain exposure to specific financial assets.
