“I would say the biggest sort of risks that are presented to most investors out there is that they’re really trying to balance risk and return, especially as they have low expected return expectations for fixed and equity,” Norman said. “How do they navigate navigate potential drawdowns in both of those markets as well as volatility?”
Through a partnership with QS Investors, the three funds take a macro, top-down approach that help balance risk to deliver broad market exposure through QS Investors’ proprietary Diversification Based Investing (DBI) rules-based methodology. Through the DBI approach, the group of global stock ETFs should exhibit low correlation of excess return to active stock managers and traditional market cap-weighted indices. The DBI methodology also helps diminish concentration risk within country and sector exposures.
“2016 was the year when you expect the unexpected, and we don’t see that changing in 2017, so we think advisors should really be focused on two things: Continuing to generate stable income, and we think equity dividends are still an attractive place to do that as well as a focus on capital preservation. And we think low volatility, high-dividend type strategies can really play a key role in the portfolio,” LaBella said.
Long-term investors who want to generate income and achieve principal growth while maintaining enough stability in their portfolio to ride out short-term market swings should consider an ETF strategy that focuses on low volatility and high dividends, such as the Legg Mason Low Volatility High Dividend ETF (NASDAQ: LVHD), Legg Mason International Low Volatility High Dividend ETF (BATS: LVHI) and Legg Mason Emerging Markets Low Volatility High Dividend ETF (BATS: LVHE).
The low volatility high dividend suite should help investors who are seeking new sources of yield in a changing market environment. The funds focus on companies with relatively high yield and low price and earnings volatility, and the funds also target profitable companies. Furthermore, LVHI and LVHE employ currency hedging to further mitigate international risk exposure.