Capital Preservation Is Key During Bear Markets

The S&P 500 has experienced its worst start to a year, through the first four months of 2022, since 1939. 

And if that didn’t sound bad, roughly half of Nasdaq stocks were down 50% through May. 

If the mantra in 2020 was stocks only go up… the mantra in 2022 is stocks can’t go up.

Most meme traders have now lost all their gains, and the few players still left, aren’t thinking about scoring monster gains, they are just trying to survive. 

And with the Nasdaq already in a bear market, and the S&P 500 almost there…

The name of the game now becomes survival. 

One place to look at is ETFs that moderate risk exposure. One of those is the iShares Core Moderate Allocation ETF (AOM).

As a diversified allocation ETF, AOM offers a unique balance between equity and fixed income.

Although it ranked second of the diversified ETF searches amongst financial pros, it offers an interesting analysis of the ‘diversified’ investment approach.

Year-to-date, the 60/40 stock/bond allocation portfolio suffered one of its worst performances.

And the question many are asking is whether either asset class is worth a penny at this point.

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iShares Core Moderate Allocation ETF (AOM)

The ETF seeks to track the investment results of an index composed of a portfolio of underlying equity and fixed-income funds intended to represent a moderate target risk allocation strategy. 

Since its inception fourteen years ago, AOM has delivered triple-digit returns to its investors. 

There are 7 holdings in the AOM portfolio, they are: iShares Core Total USD Bond Market (ISUB); iShares Core S&P 500 ETF (IVV); iShares Core MSCI International Development ETF (IDEV); iShares Core International Aggergate ET (IAGG); iShares Core MSCI Emerging Markets (IEMG); iShares Core S&P Mid-Cap ETF (IJH); iShares Core S&P Small-Cap ETF (IJR); BLK CSH FND Treasury SL Agency (XTSLA); and USD Cash. 

As you can see above, AOM is a fund of funds.

The underlying ETFs are vanilla in nature, meaning market-cap-weighted for equity and market-value-weighted for fixed income, there are no individual securities in the portfolio. The ETF aims to have greater exposure to fixed income, while also providing the opportunity for capital growth through equities.

Over 50% of AOM is IUSB, which is an ETF consisting of corporate fixed income. More than 20% of AOM consists of IVV, which is an ETF meant to replicate the performance of the S&P 500. 

Currently, AOM pays a $0.71 annual dividend to its investors. Dividends are distributed quarterly to investors. 

The fund charges investors an expense ratio of 0.21%. The index is rebalanced semi-annually starting in October. AOM has $1.161B under management. 

Investing In AOM

AOM is not the most active ETF. However, it’s not the worst either. On an average day, trading volume is approximately 221K shares. 

The structure of the ETF is designed to have moderate risk. 

As of May 12, 2022, the SPDR S&P 500 ETF (SPY) is down 17.4%, meanwhile, AOM is down 12.73%

Our Opinion – 8/10

With the Nasdaq in bear market territory, and the S&P 500 not that far off, capital preservation becomes the name of the game. AOM is a fund of funds—mainly invested in corporate fixed-income ETFs and equity ETFs. 

Since its inception, its delivered triple-digit returns, and pays a decent dividend yield to investors. 

And given how much uncertainty there still is in the market, we believe AOM is a safe place to be. And that’s why we like it over the next 12 months.