The image of the fourth-quarter volatility in 2018 must be firmly etched in investors’ minds as it was the primary concern for the rest of the year and beyond as revealed in survey results from the 2019 Virtual Summit.
Survey respondents were asked what’s weighing heavily on the minds of investors as 2019 wears on and over 60 percent chose market volatility as the main concern.
Even as U.S. equities are rebounding off the 2018 fourth-quarter tumult, investors are still looking to allocate capital defensively knowing that a late market cycle is currently in full swing. As such, it will take smart beta and factor strategies in order for investors to deploy their capital wisely.
This is exactly what the panel of experts covered during the Smart Beta and Factor Strategies for a Late Stage Market Cycle segment at the 2019 Virtual Summit, which featured:
- Mannik Dhillon, President, VictoryShares and Solutions, Victory Capital
- Sharon French, Head of Beta Solutions, OppenheimerFunds
- Alex Piré, Head of Client Portfolio Management, Seeyond
All experts agreed that while a market-capitalization-weighted index still has its place in the capital markets, more tactical strategies are necessary to navigate the current landscape. The limitations of a market-cap weighted index were presented and smart beta was defined–one that does not rely on price to select and weigh stocks for a portfolio.
“Market volatility is one of the number one concerns we’re hearing about today,” said Piré.
Adding Cost to the Equation
Given certain market conditions, investors need more than just a passive index that goes beyond a one-size-fits-all template, but at what cost? While the search for gains is always in the forefront, now cost has become a concern and finding alpha using a low-cost filter certainly poses a challenge.
Even with a plethora of options available, especially in the exchange-traded fund (ETF) space, where are the opportunities given the current market landscape that melds alpha and low cost? Can an investor really build a defensive portfolio at a low premium?
During the presentation, attendees were asked what best describes their current capital allocation: low cost with basic allocation or dynamic indexes that come at a premium, but could potentially shield investors from further market volatility?
The results showed that survey respondents wouldn’t mind paying for the extra insurance if the smart beta strategies worked in their favor:
So just when it was safe for investors to delve back into U.S. equities in 2019, fears of a global economic slowdown are reminding investors that volatility still lurks in the shadows of the capital markets and getting tactical cannot be ignored, especially when it comes to ETFs.
All the experts offered ETFs that are worth considering in this current market environment–advisors and investors can look at these experts’ picks by watching the 2019 Virtual Summit, which is available via on-demand now.