Schwab Says Equity ETFs Have Room to Run
March 21st 2012 at 6:00am by Tom Lydon
Investors should consider returning to U.S. stocks and exchange traded funds with market volatility closing in on a five-year low and an improving economic picture, some market experts say.
“Domestic equity is the right place to put your money,” Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research, said in a recent conference call with reporters.
Frederick noted that active traders, traders with an average account size of $750,000 in assets and who trade at least 36 times per year, are feeling “upbeat and primarily bullish,” as employment numbers continue to improve and the U.S. economy starts to gain momentum.
Market volatility as measured by the CBOE Volatility Index, or VIX, is down to levels last seen in June 2007.
Still, VIX-related funds remain a popular hedging tool. The Schwab analyst noted investors should be aware of how the investment products work, specifically on how contango could diminish the performance. Potential investors should do some basic research and get a feel for how the investments work. [VIX ETFs: Beware Contango]
Looking ahead, Frederick warns about some potential pitfalls in the market, including “high oil prices and its effect on the recovery, and the second related to Iran.” Iran’s nuclear program has put additional strain on its relationship with the West, and the country has threatened to close off the Strait of Hormuz, which would put added pressure on global supply.
Additionally, Frederick believes that Greece no longer poses a threat, as the likelihood of a default has mostly been mitigated.
“Greece is off the table in the near-term,” Frederick noted.
Eric Pollackov, managing director of ETF Capital Markets at Charles Schwab, commented that clients on the Schwab platform are using ETFs to express opinions, as the investment product provide greater flexibility and access to a wide range of asset classes.
Recently, the Schwab U.S. Broad Market ETF (NYSEArca: SCHB) joined the select club of $1 billion funds. Currently, about 11% of ETFs on the market have attracted $1 billion in assets under management.
For more information on the broad stock market, visit our S&P 500 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.