With broad markets hovering near record highs, investors and advisors are looking for ways to limit portfolio volatility. Consequently, more are turning to exchange traded funds to capture better risk-adjusted returns.
On the upcoming webcast, Getting Active with ETFs, Tom Dorsey, founder of Dorsey Wright & Associates, Ben Fulton, CEO of Elkhorn Investments, Steve Blumenthal, CEO of Capital Management Group, and Joseph Cunningham, executive VP and head of capital markets at Horizons ETFs, will highlight different strategies to improve risk-adjusted returns by tactically rotating ETFs in a portfolio.
In lackluster market conditions, investors can utilize a covered call strategy to squeeze out some extra returns through income generation. For instance, the Horizons S&P 500 Covered Call ETF (NYSEArca: HSPX), which uses covered calls with S&P 500 securities, and the Horizons Financial Select Sector Covered Call ETF (NYSEArca: HFIN), which tracks the S&P Financial Select Sector Covered Call Index.
Specifically, these type of covered call strategies can potentially outperform buy-and-hold, long equity positions during bearish, rangebound and slow bullish market environments. However, potential investors should be aware that the covered call strategies can lag during strong bull rallies. [When to Implement a Covered Call ETF Investment]
Alternatively, investors can also use relative strength to target areas with strong forward momentum – the relative strength factor heavily weights recent performance to identify areas that have been accelerating compared to those that have been slowing.
“Simply put, relative strength measures a stock’s performance in relation to its peers,” according to DWA. “Relative strength improves upon the technical foundation of basic trend following because it relies on unbiased, unemotional and objective data, rather than biased forecasting and subjective research.”
For instance, the Powershares DWA Momentum Portfolio (NYSEArca: PDP) uses a factor-based relative strength methodology to target stocks that have experienced strong forward momentum and potentially outperform the broader equities market in a modest bull market. However, this type of strategy could underperform in a short-term correction. [Quite a Comeback for This Momentum ETF]
While most ETF investments passively track a benchmark index, investors can still actively utilize the ETFs to adapt to short-term market moves.
Financial advisors who are interested in learning more about tactically implementing passive ETF strategies can register for the Wednesday, December 3 webcast here.