ETF Investors Talk Market Turmoil

February 06, 2018

Stephen Blumenthal, Chairman & CEO, CMG Capital Management Group; King of Prussia, Pennsylvania

The market had been and continues to be overbought, overvalued and over-believed. Yet that doesn’t mean it can’t trend higher.

We suspect it’ll trend higher over time as our trend models continue to signal a favorable environment for equity ETFs. We see the strongest momentum in emerging market ETFs such as the iShares MSCI Emerging Markets ETF (EEM).

My biggest concern is just how much money is on the same side of the volatility trade—risk-parity guys, short-volatility guys and the like. It’ll be interesting to see if a squeeze is put in place. Overall, ETFs are doing well in regard to trading and liquidity.

 

Charts courtesy of StockCharts.com

 

Ben Lavine, CIO, 3D Asset Management; Hartford, Connecticut

We’ve written in the past how compressed narrow risk premiums—high valuations in equities, narrow credit spreads in fixed income—have produced a tightly coiled market suspect to market-moving headlines. However, even the latest volatility has taken us aback.

But we believe it’s being driven by quant-based strategies, such as risk-parity funds and commodity trading advisors’ funds, that are highly sensitive to changes in the risk environment.

Although risk premiums are still narrow versus historical standards, we believe the macro backdrop is still largely supportive of risk-taking, but fundamentals will drive total return rather than further compression of risk premiums. Equity investors will earn their earnings growth rather than rely on further multiple expansion.

Contact Cinthia Murphy at [email protected]

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