When considering the market outlook for 2022, investors can also consider incorporating some alternative exchange traded funds into a diversified investment portfolio to enhance returns or manage risks ahead.
In the recent webcast, An Advisor’s Roadmap To Risk In 2022, David Albrycht, CIO and senior portfolio manager, Newfleet Asset Management, and Joe Terranova, chief market strategist and senior managing director, Virtus Investment Partners, highlighted a number of strategies that can help financial advisors best position client portfolios for the year ahead.
For example, the broad Virtus Newfleet Multi-Sector Unconstrained Bond ETF (NYSEArca: NFLT) helps target the right areas of the global bond market at the opportune times, implementing active sector rotation and disciplined risk management to achieve long-term excess returns. The unconstrained investment style does not require a manager to adhere to a specific benchmark. Instead, unconstrained strategies allow a manager to focus on returns across many asset classes and sectors, and the styles typically have a more long-term horizon. Moreover, a portfolio manager may use derivatives and other alternative asset classes to hedge market exposure.
NFLT focuses on a high-conviction portfolio. The active managers take on an opportunistic, diversified bond portfolio that pursues the greatest risk/reward potential across bond markets. Its flexible fixed income exposure is unconstrained across sectors with no target duration. Additionally, the top-down analysis weighs relative attractiveness of bond sectors, evaluating fundamentals, yields, spreads, and supply/demand dynamics.
The Virtus Newfleet ABS/MBS ETF (NYSE: VABS) can complement a traditional fixed income portfolio. The ABS (auto loans, equipment leases, credit card receivables, student loans, etc.) and MBS (pools of mortgages, both residential and commercial, agency and non-agency) sectors provide a wider investment opportunity set and much-needed diversification relative to traditional fixed income. With an emphasis on the out-of-index, niche areas of the securitized credit markets, Newfleet’s securitized credit specialists employ their hallmark relative value approach, exploiting inefficiencies by continuously evaluating the market, sectors, and securities.
VABS focuses on a lower duration with attractive yield opportunities. Targeting a duration of between one to three years, the ETF strategy’s duration is significantly shorter than traditional core bond strategies while focusing on investment-grade securitized credit, which has historically offered a yield advantage over similarly rated traditional corporate bonds.
The Virtus Newfleet Dynamic Credit ETF (NYSEArca: BLHY) can provide a high level of current income and capital appreciation by combining two converging credit sectors, high-yield corporate bonds, and floating bank loans. By actively managing the portfolio, Newfleet is able to allocate between both asset classes at any ratio within the fund. Additionally, should market conditions merit a temporary exit from credit, the fund can allocate as much as 100% to U.S. Treasuries.
BLHY can complement a traditional stock and bond portfolio. High-yield bonds have historically provided competitive risk-adjusted returns relative to stocks, while offering yield opportunities simply not achievable with traditional core bonds. Additionally, the strategy includes a relative value focus, as Newfleet’s time-tested team of credit analysts employ their hallmark relative value approach, aiming to exploit inefficiencies by continuously evaluating the market, sectors, and securities while managing downside risk.
Lastly, the Virtus Terranova U.S. Quality Momentum ETF (JOET) can help deliver exposure to U.S.-listed large-cap companies that combine strong quality fundamentals with positive momentum technical trends. The fund seeks investment results that correspond, before fees and expenses, to the performance of the Terranova U.S. Quality Momentum Index. JOET provides exposure to the best-performing U.S. large-cap companies with the highest-quality fundamental characteristics, resulting in a distinct portfolio built for long-term growth. It seeks to identify and capture the returns of high-conviction investment opportunities characterized by fundamental (quality) and technical (momentum) attributes.
This fund strategy has become more important for investors to identify longer-term trends. Combining quality with momentum, “quality momentum” is a modern index strategy that offers an intuitive investment balance of both offense and defense. The idea is to capture changing market dynamics and different investment cycles through a combination of fundamental (quality) and technical (momentum) measures.
Financial advisors who are interested in learning more about the markets ahead for 2022 can watch the webcast here on demand.