“If you move in and out of funds to chase the latest ‘smart beta’ strategy, you are destined to failure. In that case, you would have been better off with a much simpler approach,” Duong added.
Traditionally, investors would stick to some broad market stock positions, funds or ETFs for their so-called core exposure. Specialized ETFs act as so-called satellite holdings supplement their core positions.
“Specialized ETFs may be held long term to fill gaps in a diversified portfolio, or shorter term to speculate or hedge existing positions, oftentimes through leverage or inverse leverage,” Darryl J. Poisson, founder and president of DJP Wealth Management, said in the article. “Specialized ETFs are also appropriate to gain specific and targeted exposure to a particular area of conviction.”
Since retail investors don’t have the deep pockets that institutional traders enjoy, most investors may be better off sticking to plain-vanilla ETFs that track a broad index of hundreds or even thousands of stocks as a way to generate better risk-adjusted returns in a core portfolio position. [Niche and Alternative ETFs Push Up Overall Fees]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.