QUICK TAKE: Stay Balanced in ETFs: SSGA


If one is going to trade exchange-traded-funds, the key theme for 2020 is balance.

Investors should neither overweight nor underweight the sector and position their portfolios to reflect the growing market risks, including outflows, according to State Street Global Advisors.

Matthew Bartolini, SSGA

In their latest report and review, “The 2020 ETF Market Outlook: Threading the Needle,” analysts there including Matthew Bartolini and Michael Arone, said that particular care must be exercises in the sector after the last few stellar years and despite investors feeling like they might have missed out, caution is the key this year.

“As the fear of missing out on future gains creeps in, investors might consider altering their view on risk assets and then jump back in with both feet, SSGA wrote. “However, blindly buying equities in 2020 could be a bigger risk than not owning them in 2019.  Investors should consider strategies that limit the impact of volatility while pursuing equity returns.”

Furthermore, generating sufficient levels of income within bond portfolios should be “more about balancing duration, credit and geopolitical risks and less about reaching for double-digit returns” they said. Bartolin advises using active strategies that have the ability to rotate and “puck up” yield across bond sectors may help to balance these risks.

Michael Arone, SSGA

“Investors have the ability to precisely tailor bond portfolios for the year ahead and, based on their risk profile, create customized and flexible active tilted to broad-based Aggregate bonds,” he wrote.”

Michael Arone, Chief Investment Strategist at SSGA concluded that with broad-based stocks and bonds at all-time highs—and an ever-evolving backdrop also experiencing all-time high uncertainty—having an alternative solution with low correlations to traditional markets as part of the asset allocation mix may be beneficial in 2020.

“The historical low-correlation structure of gold to stocks and bonds has manifested itself in positive average returns during bouts of volatility,” Arone wrote.

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