Written by David Fabian, July 12th, 2017
The world of bond funds is generally split along two distinct lines: active and passive. You either own the benchmark or you place your bets with the fund manager who is proactively trying to beat it. Both strategies offer numerous benefits and risks depending on your investment objectives.
With a passive index, you know exactly what you own and that you are going to get every tick of associated price movement from the portfolio. There are strict rules on what securities can be admitted and when they are rebalanced. These funds also offer the lowest costs in terms of direct investment expenses.
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Written by David Fabian, June 07th, 2016
As exchange-traded funds have evolved over the years, we have seen greater interest in funds that screen for a specific factor. This may include historical volatility, size, momentum, or even “quality” characteristics. This last term in particular is one that is often used with great reverence, but may mean vastly different things to different investors.
Quality can stand for superior products or services, low debt ratios, profitability trends, sustainable dividends, or stable earnings growth. In practice, several of these screens may applied to a large universe of stocks in order to find companies showing superior balance sheet characteristics versus their peers.
Written by David Fabian, May 06th, 2016
Looked at a chart of stocks lately? It’s difficult to conjure up any sense of enthusiasm in the price action over the last year. We have endured two pernicious drops that have been snatched from the jaws of defeat at seemingly the last moment. Only to experience a concomitant rip roaring rally that fizzles near the highs. This type of whipsaw action is where nervous investors get shaken out near the lows and stressfully forced back in at the worst possible time. Read more
Written by David Fabian, April 26th, 2016
Low volatility ETFs have become an increasingly popular tool for investors to access a subset of stocks with historical trends of minimal price fluctuations versus their peers. While these funds have existed for half a decade now, they have recently seen a huge influx of capital in relation to other stock-focused strategies.
According to ETF.com fund flow data, the iShares MSCI USA Minimum Volatility ETF (USMV) has added $4.4 billion in new asset since the start of 2016. That ranks as the second highest year-to-date asset accumulation of any U.S.-based exchange-traded fund. Not far behind is the iShares MSCI EAFE Minimum Volatility ETF (EFAV), which has added $1.9 billion this year as well. This is likely due to the heightened concern for another dip in stock prices alongside the successful relative performance story that these indexes have been able to generate.
Written by David Fabian, February 09th, 2016
Exchange-traded funds that generate their buy and sell signals based on momentum have become an extremely successful corner of the market. These funds typically use systemic triggers to overweight their portfolio towards the strongest corners of the market relative to other opportunities. This leads to purchasing sectors that are outperforming their peers and relinquishing areas of the market that have fallen out of favor.
This type of rebalancing may seem like it falls into the “active management” category, but fund sponsors are largely able to get around that moniker by keeping things very transparent and methodical. They don’t plan changes based on research or intuition by a team of experts. All of the transactions are done at specific intervals based on precise factors that are spelled out in the prospectus. That is why they are often labeled as “smart beta” or an “enhanced index”, which is used to differentiate this type of fund from a traditional passive benchmark or active portfolio.