Records are set all of the time… in sports, business and in life. The question is once a record is set, should the focus then be on breaking it again or simply pursuing the strategy that got you there?
As discussed in a previous Blog post, we just finished an incredible record year in the ETF industry, with more than $330 billion in new investments[1]. I recently shared this fact with a group of high school students at a mentoring event and why ETF popularity has skyrocketed. Naturally, a group of sophomores and juniors aren’t really considering ETFs or investing in general, as they’re more curious about how to set a course for college. But planning an investment strategy is very similar to planning a career path―you want to set goals, but you also have to be flexible when life throws you a curve.
ETFs can help you do just that. And as more investors discover their benefits, the industry is growing rapidly. While it’s anyone’s guess whether there will be another broken record a year from now, I’m confident that ETFs will continue to gain traction around the globe.
The Role of Flexibility in 2015
Financial markets started the year with several challenges, including increased volatility in markets and currency. ETFs can help you navigate the choppy waters in a variety of ways, two of which I will highlight here.
First, we believe smart beta will continue to grow. The category has quadrupled in the past five years[2], pulling in over $65 billion in assets in 2014. As my colleague Sara Shores writes, smart beta combines elements of active and passive strategies to accommodate unique investment opportunities. I see two types of smart beta that can potentially help strengthen investor portfolios in 2015:
1. Minimum volatility. These funds could see more demand as investors try to reduce risk during turbulent periods. For an investor, they give exposure to a key index but through targeted holdings, seeking to reduce risk and decrease the market’s peaks and valleys.