ETF Strategists Offer Year-End Advisor Tips

December 16, 2013

Kim Arthur, chief executive officer and founding partner of San Francisco-based Main Management

We’ve definitely been doing the tax-loss harvesting. We’re also doing some rejiggering of asset allocation, moving people into strategies that we think will benefit from a heightened volatility that will happen next year.

I don’t think it will be explosive volatility, but I think we’ll have more volatility than we had this year. Specifically, we’ve got our option overlay, our buy-write strategy, and we’re moving people into that, and that will allow us to capture return when the VIX moves higher.

And I’d also throw out here that there’s an interesting stat out there that every time you have a new Fed chairperson—this is the first time we’ll ever have a Fed Chairwoman—the market averages an 11 percent drop in the first six months of that person’s call to duty. That’s equities in the Dow Jones, specifically.

One of the reasons for that might be as simple as that first chairperson gets in and says, “I have a compulsion to contain inflation.” Even though Janet Yellen said in her confirmation hearing that she would target employment and price stability, new Fed chairs want to show how tough they are.

They want to show that they’re good at fighting inflation, and that obviously scares the stock market. And typically what happens after that six-month scare is that people get back to doing what they want to. But it’s eerie; it’s been that way all the way back to 1917.

So we’re actively moving people into that strategy, and we’ll probably be more aggressive on the call writing. This market pullback with the new Fed Chair is a six-month thing, but we’ll probably be writing calls a little close and be monitoring price targets a little tighter here.

 

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