As the capital markets move forward, so does the various strategies in the ETF universe, which have experienced exponential growth over the past decade.
As such, it’s important for investors to keep abreast of new trends with respect to market cycles and the changing landscape of ETFs by staying In The Know–a segment filmed at the New York Stock Exchange that features market experts, such as Yasmin Dahya, Head of Americas Beta Specialists at JP Morgan Asset Management; Samantha Azzarello, Global Market Strategist at JP Morgan ETFs; and Douglas Yones, Head of Exchange Traded Products at NYSE.
Market Cycle Understanding
Just like an airplane pilot must have spatial awareness, an investor must understand the economic landscape he or she is currently navigating. From her time as an economist at CME Group to her current role as a global market strategist at JP Morgan ETFs, Azzarello understands the importance of identifying market cycles.
With the S&P 500 recording the longest ever bull market and the Nasdaq Composite breaking past the 8,000-point level, the cycle is apparent to Azzarello.
“I think we’re squarely late cycle,” said Azzarello. “That is definitely a theme in the US right now. A lot of indicators we look at suggest late cycle, while more traditional indicators like wage growth and the yield curve are suggesting mid cycle. I think that’s left investors confused. I would say is that if you think about the way growth has played out over the last 10 years, it’s been lower, it’s been sticky and drawn out, and late cycle could be … It couldn’t be any different than that. It could be two years.”
Related: In the Know – Stay up to date on ETF This Quarter
ETF Options Abound
The rise of ETFs has allowed investors to corner specific areas of the market that they did not have access or required a substantial amount of capital prior to investing. One area that Yones is seeing in his time at the NYSE is the growth of fixed-income ETF products.
Thanks to ETFs, investors now have access to various aspects of the bond markets whether they are domestic, international, investment-grade, high-yield and more.
“A lot of times we think about ETF’s as being a stock or an equity product, but really it’s these fixed income ETF’s that continue to be launched new and ways to access that market,” said Yones. “Wrap it in an ETF wrapper, you can trade it on the Stock Exchange, you’ve got access to fixed income instruments.”
Alternative Strategies in ETFs
Moving forward from the late cycle, investors must be able to employ strategies that best adapt to the changing economic landscape. An area that Dahya sees as beneficial, particularly in a down market, is within alternatives strategies, which employ similar methodologies to those of hedge funds.
“Alternatives is a passion point near and dear to my heart,” said Dahya. “If I think about the broad market context right now, and you look at traditional equity investments, the last nine years we’ve seen very, very strong returns from US equity markets. But, you have to ask the question, ‘What’s the forward looking expectation for them?’ Then you marry that with forward looking expectations for fixed income markets, and their role as a diversifier in a portfolio, and you can see a quite strong case for the role of an alternative. Particularly if you look at something like hedge fund strategies.”
Understanding the market cycle, looking at all ETF options and employing alternative strategies when necessary can help investors change with the times irrespective of whether the market is reigned by the bulls or bears.