Amid Uncertainty, It’s OK To Be Boring

September 30, 2014

When you’re really not sure what’s going to happen next, a few cheap and liquid ETFs may do the trick.

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article is by Larry Whistler, president and chief investment officer of Buffalo, N.Y.-based Nottingham Advisors.

A recent snap investor survey conducted by Strategas Research Partners brought to light the great chasm in terms of the market outlook that exists today within the professional investment community. A conundrum? We think not, and here’s why.

We think it spells an opportunity to deploy a bit of cash to the core using inexpensive and highly liquid funds like the iShares Core S&P Total US Stock Market ETF (ITOT | A-100), among others.

But before looking at more ETFs that might be appropriate choices, let’s look at the results of the survey.

The table below summarizes the results compiled from 689 respondents:

Investor Survey Results - Next 12 Months
Data Point High Low Avg
S&P 500 2500 1350 2047
10-Year Treasury Yield 4.25% 1.50% 2.95%
Fed Funds Rate 2.00% 0.00% 0.40%
WTI Crude Oil $150 $75 $99
Source: Stategas Research Partners, 689 respondents

Split Decisions

While the survey was fairly straightforward, the conclusions reached are anything but. Equally seasoned professionals, it could be argued, see the S&P 500 Index either rising 25 percent over the next 12 months, or falling 33 percent! The average response was for the S&P 500 to record a meager gain of 2.3 percent. This isn’t exactly a consensus call, to say the least.

Within the commodity arena, crude oil is seen to be priced anywhere from $75 to $150, with a mean price of $99—not too far off today’s level. What this means is that the “average” professional investor doesn’t see the price of oil changing much over the coming year. However, the return distribution suffers from some fairly fat tails.

And it’s not only in the equity/commodity arena where the differences lay. The range of estimates for the 10-year bond yield a year from now extends from a low of 1.50 percent to a high of 4.25 percent. Even the average response of 2.95 percent shows a large difference from today’s level of 2.49 percent.

The bet on Fed Funds a year from now ranges from zero percent to 2.00 percent, with an average of 0.4 percent, or 40 basis points.




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