Granted, an assessment of small cap price movement does not provide a definitive answer for the ETF enthusiast. Nor should one abandon an entire asset class due to underperformance alone. That said, when you combine trendline uncertainty, increased volatility and severe overvaluation on a price-to-earnings ratio (P/E) basis, the rationale for exposure becomes murky.
Tactical asset allocation is a strategy whereby one seeks better risk-adjusted returns than one might achieve by “holding-n-hoping.” I do not buy, hold and hope. When the risks (e.g., fundamental overvaluation, technical price movement uncertainty, geopolitical tension, central bank policy transition, etc.) of owning a particular asset exceed probable rewards, I reduce or eliminate ownership. Cash can always be redeployed.
One of the best trends right now? Asia ex Japan. I said it in April and in May, and I am saying it again right now. The most favorable longer-term trends with the most attractive valuations are in Asia. Consider iShares MSCI Asia ex Japan (AAXJ), particularly on a price pullback.
