Written by David Fabian, October 31st, 2017
One important dynamic of portfolio construction and risk management is understanding how your stocks fluctuate in relation to the broader market. This factor is often referred to as “beta,” which is essentially the historical volatility of a stock or fund in relation to a benchmark such as the S&P 500 Index.
The higher the measured beta of your holdings, the greater price fluctuations they will have in comparison to the benchmark. A high beta score doesn’t necessarily mean that your investments will outperform on the upside or underperform on the downside. It simply means they have exhibited characteristics of outsized moves or over-reactions in the past.
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Written by David Fabian, June 21st, 2016
Picking the right exchange-traded fund for your investment portfolio can be an arduous task that is often compounded by the sheer number of available offerings. In some sections of the ETF marketplace, there can be 10, 15, or even 20 competing funds that offer just slightly different variations on the same theme.
This is especially true in the commodity space through its wide variety of single-sector and diversified indexes. Many investors will default to the ETF with the longest history, lowest expenses, or largest assets under management. However, that strategy doesn’t always result in the best overall returns and can often lead to surprises in tax treatment or other unforeseen risks.
Written by David Fabian, April 12th, 2016
Multi-asset income funds have become popular in recent years due to their above-average yields and integrated diversification qualities. Rather than having to evaluate and select five to ten individual income funds, ETF investors can purchase a single entity that does the work for you. This typically includes a range of investment groups such as: dividend paying stocks, preferred stocks, master limited partnerships, REITs, and a broad array of global bonds.
Most of these diversified income ETFs to-date have been based on a relatively static index that promises to re-balance on a quarterly or annual basis. While this method is reliable for keeping your exposure broad and locked into pre-set sectors, it also may fall short of honing in on the top-trending areas of the market.
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Written by David Fabian, February 29th, 2016
Many investors have now transitioned to a lower stock allocation during the midst of this early 2016 decline. In fact, it has likely created a new sense of reality that it may be time to transition to a structure of low volatility to wait out the storm.
A conventional and highly touted method has been to own stocks with lower historical price fluctuations than their peers like the iShares MSCI USA Minimum Volatility ETF (USMV). However, there is also another way for ETF investors to own a basket of stocks with built-in options to collect income and potentially reduce price volatility. Read more
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.