For some people, the early days of the fourth calendar quarter is a good time for reflection. In life and certainly in portfolios. How has the year gone the way you and your clients expected? Are there things that you should change now, or to set you up for 2025?
As of Oct. 4, the SPDR S&P 500 ETF (SPY ) climbed 21%, a strong year already after a 26% gain in 2023. Meanwhile the iShares Core US Aggregate Bond ETF (AGG ) was up 4.2%, on the heels of a 5.7% total return the year before.
Focusing on Equities
These might not be your core U,S, equity and U,S, fixed income ETFs. There are strong, largely similar, relatively low-cost index-based alternatives from firms you are well familiar with. Upon reflection, you might want to add in an actively managed large-cap equity ETF or factor index equity ETF to complement SPY or its peers. These can possibly boost the income, help manage the downside or, if willing to take on the risk, enhance returns. We will come back to fixed income in a moment.
Some of you might already have international equity or U.S. small caps as part of the equity allocation. The Vanguard FTSE Developed Markets ETF (VEA ) was up 11% thus far, while the iShares Core S&P 600 SmallCap ETF (IJR ) rose 7.3%. Though neither has matched the full-year gains of SPY, they have outperformed in the last three months. It makes sense to have an investment-style, not just security-level, diversification. There are active or factor funds in these styles too.
However, do you want to boost your exposure to these styles given U.S. monetary policy will be different going forward than last year? Do you want to add emerging markets? Or given the gains in equities in 2024, do you want to take some profits and reduce exposure?
How Does Fixed Income Fit in?
If you want to reduce equities, where should you turn? In fixed income, you might already have more than a core index-based bond ETF. For example, the iShares Broad US High Yield Corporate Bond ETF (USHY ) has $19 billion in assets. USHY was up 8.5%, rewarding investors that took on more credit risk.
Meanwhile, actively managed ultra-short bond ETFs like the JPMorgan Ultra-Short Income ETF (JPST ) and the PIMCO Enhanced Short Maturity Active ETF (MINT ) could be an alternative to sitting in cash. For much of 2024, cash was a great boost to your portfolio. But as the Fed continues to cut rates, you are missing out on potential price appreciation available in bonds.
What about gold? The SPDR Gold ETF (GLD ) has outperformed all of the above, catapulting 29%. Does it or its lower-fee peers have a place in your portfolio? What about the newer spot bitcoin ETFs?
Take the time to reflect. Even if you make no portfolio changes, that’s a decision.
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