We’re approaching the 10-year anniversary of the Lehman Brothers bankruptcy, which opened the floodgates for the financial meltdown that followed during the subsequent six months.

While the factors behind the perfect storm of 2008-2009 are unlikely to align this time around, fresh storm clouds are appearing on the horizon. Nuveen Asset Management’s Robert Doll, for example, cited several factors that could spell the end of the current, historically long bull market: a sooner-than-expected recession; problems posed by rising trade barriers; and a slowdown in corporate profit growth.

And there are two more market headwinds to ponder. First, the Federal Reserve will likely raise rates twice more this year, with possibly more to come after that. And emerging markets are now in bear market territory, raising concerns of a spreading contagion.

That’s why some investors are once again starting to prepare for the eventual and inevitable bear market. While many investors will play defense with a simple approach such as put options on the S&P 500 Index, some ETFs offer more proactive ways to profit from a market pullback.

Cheaper Than 2-and-20

With roughly $130 million in assets and a seven-year track record, the AdvisorShares Ranger Equity Bear ETF (HDGE) is the seasoned veteran of the current crop of bear-tilting ETFs. The fund seeks short-sale candidates by focusing on companies that have dubious earnings quality, use aggressive accounting techniques or appear vulnerable to negative catalysts such as an earnings shortfall. In effect, this ETF is more like a hedge fund.

That notion is backed up by an eye-popping 2.86 percent expense ratio. Noah Hamman, CEO of AdvisorShares, says the ETF’s costs are in line with other actively-managed products. Indeed, when successful, this fund is built to be a better bargain than hedge funds, which often charge a two percent commission and a 20 percent take of any profits. Hamman adds that the ETF approach is much more transparent than hedge funds by providing a daily window into the fund's holdings.

The high fees are partially due to the unusually intense level of oversight the portfolio requires. “When you’re short selling, you need to stay on top of the holdings and be able to react quickly to news,” says Hamman. Roughly one-third of the fund’s expenses are attributed to the short interest expense—i.e. the cost to borrow to short stocks in the underlying portfolio. It is axiomatic to note that this ETF has delivered negative returns throughout the current bull market.

Getting Technical

AdvisorShares in July launched a second bear fund, this time in tandem with Nasdaq Dorsey Wright. That firm has built a strong following among advisors and investors with its focus on a relative strength index (RSI) technical approach. The new AdvisorShares Dorsey Wright Short ETF (DWSH) flips the RSI angle by shorting stocks that show signs of relative weakness. “It’s the same systematic and disciplined process that Dorsey Wright is known for, yet turned on its head,” says Hamman.

The fund, which has a 0.99 percent expense ratio, has somewhat proved its mettle in its short life. Since inception, it has shed only 0.48 percent of its value, according to Hamman, compared to a 4.14 percent gain for the S&P 500. A purely inverse fund would have slipped by around four percent in that time. The real test for this ETF, as with the other bearish ETFs discussed here, will come when the market begins to move sideways or heads down.

The Hybrid Approach

The WisdomTree Dynamic Bearish Fund (DYB) takes a more nuanced—and complex—approach to defensive investing. The fund pairs a long position in 100 U.S. stocks with a market capitalization of least $2 billion and that score high on growth and value metrics, while also deploying a corresponding short position in the S&P 500.

And here’s where things get tricky. If the broader market looks bearish relative to historic growth or valuation metrics, then the long part of the portfolio may be ratcheted down, potentially all the way to a zero percent weighting, leaving behind a 100 percent short component and Treasuries replacing the original long component.

On the flip side, if growth and valuation metrics are currently scoring well relative to historical trends, then the long side of the portfolio stays on, along with a 75 percent hedge. Thus, net equity exposure of the fund can vary from 25 percent in attractive environment to -100 percent in a bearish environment. “Right now, the hedging indicator is not on,” says Gaurav Sinha, asset allocation strategist at WisdomTree.

This fund, which has a 0.48 percent expense ratio, launched in late 2015 and has yet to have a chance to prove its worth in a flat or down market. So how can we know how this complex approach will fare? Sinha notes that WisdomTree cannot share data about historical testing data to the general public and instead only to financial professionals. But he does say that “the back-testing [during past market downturns] gave us the confidence to utilize this approach.”

This ETF’s exposure to long positions helps it hold up better in bull markets than purely short-focused funds. For example, it has risen 6.2 percent in the past 12 months (even as the S&P 500 has zoomed ahead 18.8 percent in that time).

Being On Guard

While the very long bull market continues unabated as we enter the year’s home stretch, that in and of itself should be a cause for concern because nothing lasts forever and the stock market often corrects itself on short notice. In other words, the current bullish mindset that has lifted U.S. equities to record highs means that a lot of investors will likely get caught with their pants down around their ankles when a correction—bear market or otherwise—finally occurs. Now is a good time to start exploring more defensive options to deploy when the bear begins to prowl.

For financial advisors looking to add bear-market protection to client portfolios, a big question becomes how to go about it. “It certainly depends on the advisor and their client’s risk tolerance,” Hamman says. “We primarily engage with advisors who employ HDGE and DWSH to reduce volatility as part of a long/short domestic equity strategy, which can range anywhere from a five to fifteen percent allocation of an overall portfolio.”

Because the stock market is up more than it’s down historically, bear market-oriented funds are often on the wrong side of the bet. But eventually they’ll be on the right side, and that’s when these types of funds will likely earn their keep.