As investors rebalance and adapt portfolios in response to the recent volatility, ETF investors should aim to create and maintain an efficient portfolio to generate ample returns, using a process that is dynamic enough to manage even the most extreme market conditions.
On the recent webcast (available on demand for CE Credit), Today’s ETF Portfolio Strategies For Long-Term Portfolio Construction, Andy O’Rourke, Managing Director and Chief Marketing Officer for Direxion and Portfolio+ ETFs, outlined a number of concerns that have gripped the markets today, including rising rate risks, inflation fears, Facebook’s data breach and the technology sector meltdown, and talks of a trade war.
“These are all potential concerns, but there is still plenty of reason to be optimistic about the markets,” O’Rourke said. “In other words, we expect the volatility to calm down at some point soon,”
When building a long-term investment portfolio, investors will have to consider the amount of risk they are willing to take on to justify the amount of returns they hope to achieve.
However, Tom Hardin, Founder and CEO of Canterbury Group, pointed out that playing it conservative has not always helped investors over the long-run. For instance, from 2000 to 2017, Hardin showed that a buy-and-hold investor only made money a total of 3.6 years over the past 17 year period as market swings more or less washed out overall returns and it was only the past few years that an investor made money.
Investors may also even consider actively managed strategies to help generate alpha or outperformance. However, O’Rourke warned that many active managers have underperformed their benchmarks. Over the past 15 years, around 80% or more active fund managers across the various asset categories have been outperformed by their benchmarks, so passive index-based funds would have been a better long-term play for investors.