Big money seeks diversification in ETFs

Name one market or sector that trades at a discount.

I’m talking about a sector that is cheap by historical standards.

About the only one that comes to mind is retail, which faces obvious headwinds.

The fact is, that by most measures, stocks, bonds…literally everything is expensive.

Probably why we are worried about inflation.

So what do we do?

Timing the market can be difficult if not impossible.

That’s why some basic strategies and tweaks can reduce your risk and volatility.

And one of the answers came right from our TrackstarIQ Search Data…

Diversify your holdings

We’re not talking about holding different sectors in the U.S. market.

Heck, even global equities can be a problem.

But have you ever considered alternative strategies like currencies or options?

If you take a look at the TrackstarIQ data, you’ll notice that a variety of ETFs topped our search results. And interestingly, metals and oil, two inflation hedges, topped our list.

Look, you don’t have to be an expert to take advantage of these ideas.

We’ve talked before about sector-specific ETFs like the XLE Energy ETF or the GDX Gold miner ETF.

But you can branch out even further.

For example, IQ Hedge Long Short Tracker ETF (QLS) is a fund that balances long and short positions to remain market neutral.

The strategy buys stocks it expects to rise and shorts stocks it expects to fall. So, when the overall market rises or falls, it has a hedge in place.

And you might ask why bother with a strategy that’s only up 7.95% year-to-date.

Check out its performance when the market tanked last year in March.

During the swoon, the QLS saw a 33% smaller drawdown than the SPY, creating a gap that took most of the year for the SPY to overcome.

The key concept here is that you can diversify your strategies without necessarily giving up returns.

Look at the portfolio view changes

All too often we get enamored with an idea. The potential profit excites us like no other.

That’s a big reason why we read articles about the stocks we own – we want validation.

Yet, that same tunnel vision keeps us from looking at the bigger picture.

Any potential changes you make in a portfolio should be reviewed individually and in aggregate.

True, it’s tough to see how changes might impact individual equity amongst dozens. But you should at least understand the changes at a sector level.

Measuring things only as a mix of bonds, stocks, and cash doesn’t cut it.

Our hot take

A lot of you are interested in exploring alternative ETFs and strategies to augment returns.

Bear in mind that’s also a hallmark of investor exuberance.

That said, stick with ideas you’re comfortable with. If you don’t understand options, don’t use them. It will only make your work more difficult and frustrating.

And most likely less profitable.

Questions from your clients

  • What types of alternative ETFs and investment funds are out there?
  • What’s a good mix of stocks, bonds, and cash right now?
  • Where can I find value in this market?
  • Is there any sector left with room to run?

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