The second half of 2019 is upon us, and investors have plenty to worry about.
From reading cues from the Federal Reserve, to making sense of ongoing trade wars, to assessing geopolitical risk, questions abound about what U.S. and global growth look like going forward.
Year to date, ETF investors have piled into fixed income strategies, showing some aversion to risk—a theme that has prevailed this year, and by most accounts, one that will continue to guide investment decisions.
Year-To-Date Asset Flows As Of Mid-June
| Net Flows ($, mm) | AUM ($, mm) | % of AUM | |
| U.S. Equity | 23,930.52 | 2,194,269.52 | 1.09% |
| International Equity | 6,295.59 | 816,371.51 | 0.77% |
| U.S. Fixed Income | 57,699.73 | 671,852.31 | 8.59% |
| International Fixed Income | 6,602.36 | 75,151.04 | 8.79% |
| Commodities | -1,853.13 | 63,114.34 | -2.94% |
| Currency | -236.74 | 1,553.96 | -15.23% |
| Leveraged | -1,965.77 | 36,562.63 | -5.38% |
| Inverse | 2,658.94 | 11,895.24 | 22.35% |
| Asset Allocation | -372.90 | 9,420.75 | -3.96% |
| Alternatives | 612.57 | 4,582.68 | 13.37% |
| Total: | 93,371.16 | 3,884,773.98 | 2.40% |
Looking ahead, how should you allocate your portfolio in light of so much uncertainty?
We asked ETF strategists what’s top of mind for the coming months, and how best to invest in the second half of the year. Here’s what they had to say.
Gary Stringer, president & chief investment officer; Memphis, Tennessee-based Stringer Asset Management
We have recently been paring back our equity market exposures. While the U.S. stock market is nearing all-time highs, some of our favored economic indicators have weakened. Their weakening suggests sluggish economic growth ahead, and their deterioration will likely make equity markets more vulnerable.
As a result, we have recently moved to further increase the defensive nature of our strategies. We think the Fed will begin to reduce short-term interest rates soon in response to the weaker economic growth.
However, we’re concerned the Fed won’t act soon enough or forcefully enough to avert further economic deterioration. Though we have positioned our strategies somewhat more cautiously, we continue to expect global economic growth and higher equity prices, subject to bouts of volatility.
Here are our favored choices currently:
- U.S. Equity: health care (iShares U.S. Medical Devices ETF (IHI)); low volatility (iShares Edge MSCI Min Vol U.S.A. ETF (USMV) and Invesco S&P 500 ex-Rate Sensitive Low Volatility ETF (XRLV))
- Global Equity: low volatility (iShares Edge MSCI Min Vol Global ETF (ACWV)); infrastructure (FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA)), value style and Asian emerging markets (SPDR MSCI Emerging Markets StrategicFactors ETF (QEMM) and iShares MSCI Emerging Markets Asia ETF (EEMA))
- Fixed income: short and intermediate-duration high quality bonds (First Trust Low Duration Opportunities ETF (LMBS), SPDR Bloomberg Barclays Mortgage Backed Bond ETF (MBG), SPDR Portfolio Aggregate Bond ETF (SPAB), SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB); and taxable municipal bonds Invesco Taxable Municipal Bond ETF (BAB))
- Alternatives: diversified alternative income (Multi-Asset Diversified Income Index Fund (MDIV), iShares Morningstar Multi-Asset Income ETF (IYLD); merger/arbitrage IQ Merger Arbitrage ETF (MNA); and covered call writing Invesco S&P 500 BuyWrite ETF (PBP))
