Written by David Fabian, September 12th, 2017
The “fund of funds” style is a portfolio tactic that has been used successfully for many large investment companies. Think about those target-date or target-risk funds in your 401(k). They are essentially a single mutual fund filled with 8-12 underlying funds to create a highly diversified investment strategy using varying asset classes.
It was initially assumed that this same dynamic would be readily embraced in the exchange-traded fund format as well. However, after several failed attempts, it’s becoming apparent that ETF investors want certain attributes within a “fund of fund” strategy that they can’t find elsewhere. The following three examples highlight the largest of this breed and how they have developed over the last decade.
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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.