Standard & Poor’s has cut the U.S. debt rating and global stocks are selling off, so does this mean investors should react by reshuffling the exchange traded fund allocations in their portfolios?
The change in the U.S. debt rating does not warrant a total change in portfolio composition. Rather, investors may want to consider what their risk appetite can handle and assess what safeguards they want to use for protection, such as setting a stop loss. [Summer Crash of 2011?]
“The downgrade of U.S. sovereign credit by S&P on Friday reflects facts that have been well known to the market for some time. So, it does not imply a fundamental increase in risk, and we don’t believe that investors should change their behavior based solely on the downgrade. However, in combination with continued economic weakness and regulatory uncertainty, this may provide a signal to some investors to reassess their risk appetite,” said ETF manager BlackRock in a recent media statement.
Some are worried that ETFs with small asset bases may be forced to shut down in a market downdraft, reports Reuters.