Amid Uncertainty, It’s OK To Be Boring

September 30, 2014

Fund Name Exposure No. of Holdings Spread % 3-Month ADV Expense Ratio
SPDR S&P 500 (SPY) Domestic Equity 503 0.01% 83,936,000 0.09%
Vanguard S&P 500 (VOO) Domestic Equity 510 0.01% 962,775 0.05%
iShares Core S&P Total U.S. Stock Market (ITOT) Domestic Equity 1,504 0.04% 82,084 0.07%
Vanguard FTSE All-World ex U.S. (VEU) International Equity 2,396 0.02% 863,319 0.15%
iShares MSCI ACWI ex U.S. (ACWX) International Equity 1,159 0.05% 287,900 0.34%
iShares MSCI EAFE (EFA) International Equity 905 0.01% 13,005,427 0.34%
iShares Core U.S. Aggregate Bond (AGG) Domestic Fixed Income 2,709 0.01% 1,200,783 0.08%
Vanguard Total Bond Market (BND) Domestic Fixed Income 16,027 0.01% 1,767,411 0.08%
Sources: ETF.com, Bloomberg

Boring Can Be Better

When it comes to the beta trade, sometimes “boring is better.”

Rather than sacrifice liquidity to reach for some incremental yield or a nuanced fundamental index, remember why you’re buying the ETF in the first place—as a placeholder. The time will come when fundamentals will change or the market will riot or a country-specific opportunity will arise, such as Portugal, recently.

At that point, you’ll be able to cheaply and easily sell the interim ETF and reinvest proceeds into a new tactical trade.

Profitable tactical trades can be hard to come by under favorable circumstances.

In today’s fully priced markets, we feel it’s especially hard to develop a high-conviction tactical trade idea. Rather than risk negative alpha, it can be better to add to the core and be patient. Calm markets rarely last long; so enjoy them when they’re here, but be in a position to act when opportunity strikes.

 

At the time of writing, Nottingham owned shares of SPY, ITOT, VEU, ACWX, IEFA, AGG and BND on behalf of clients.


Nottingham Advisors is an ETF strategist that manages and advises on more than $1 billion in assets for advisors, institutions and individuals. Nottingham has been using ETFs since 2001 and currently offers five unique strategies with focuses on risk-based total return, current income and real return. To learn more, visit www.nottinghamadvisors.com or contact Nottingham directly at 716-633-3800. For all relevant disclosures, please go here.



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