Homework Required for ETF Bets, Says ETF Expert By Investing.com

© Reuters

By Christiana Sciaudone

Investing.com — When it comes to ETFs, buyer beware. 

“Don’t judge a book by its cover,” said Jillian DelSignore, principal at Lakefront Advisory in Chicago. “Just because it’s called a certain thing, doesn’t mean it is a certain thing.”

Exchange traded funds are all the rage, with about $1 trillion in assets added over the past year to the market, for a total of almost $5 trillion. More and more traditional asset managers are moving into the space and with so many offerings on the table, it can be confusing to figure out what’s what. 

As an example, DelSignore pointed to iShares MSCI USA Min Vol Factor ETF (NYSE: and Invesco S&P 500 Low Volatility ETF (NYSE:)) which promise low volatility but have very different constructions.  

USMV uses an algorithm and is focused on particular sectors, and is overweight in defensive names. Meanwhile, SPLV includes about 100 S&P 500 stocks with the lowest daily volatility over the past year. The difference matters. Year-to-date, USMV is down 4.5% and SPLV is down 9%.

“Understanding what you’re getting and popping the hood is really important,” DelSignore said in a phone interview. DelSignore has been in financial services for some 20 years, about 12 of them focused on ETFs. Prior to joining Lakefront this year, she was head of ETF distribution at JPMorgan (NYSE:).

ETFs are generally understood to be passive, but active ETFs are gaining steam, DelSignore said, including those considered “non-transparent,” which simply means they don’t reveal holdings on a daily basis. That’s attracting large traditional mutual fund managers into the space — they’re highly likely to have been seeing assets flow out and into ETFs —  since they don’t have to worry about being copied because they report monthly or quarterly. The move could potentially reverse the outbound trend. 

Not that anything is guaranteed, with active ETFs still in early stages.  

“The jury is definitely still out on what the success will look like of these products because they don’t have a track record,” DelSignore said. “They are going to want to see positive performance.”                

Ultimately, investors need to focus on what they want to achieve, where they want to anchor themselves. DelSignore highly suggests working with a financial advisor amid the noise. 

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Be the first to comment

Leave a Reply

Your email address will not be published.


*