Invesco Canada blog

Insights, commentary and investing expertise

Exchange-traded funds: Strategies for mitigating the new risks of the new year

Key Takeaways

  • We see new risks on the horizon for both equity and fixed income investors, but there are various exchange-traded fund strategies that we believe can help.
  • We expect that a loss of profit momentum in 2019 could lead to increased volatility and correlations, and we believe that the Low Volatility and Quality factors may perform relatively well in such an environment.
  • With the overall climate still tilting in the direction of higher rates in 2019, one way to potentially manage that risk is to build bond ladders using defined-maturity bond funds.

In the new year, we see new risks on the horizon for both equity and fixed income investors. Equity markets are anticipating a loss of momentum for corporate profit growth. And, for the first time in 12 years, fixed income investors are forced to wrestle with the challenge of navigating a multi-year upward trend in interest rates at both the short and long end of the bond universe. There are various exchange-traded fund strategies that we believe can help with both challenges.

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Solutions: Heading into an uncertain 2019, diversification must be top-of-mind

Key takeaways

  • The road ahead is expected to be challenging due to a variety of factors: rising global interest rates, increased volatility, diverging global monetary policies, and heightened geopolitical tensions around trade and tariffs.
  • Our forecasts for returns are tepid across the major asset classes.
  • There remain pockets of opportunities within asset classes.

Heading into 2019, the market’s resiliency is likely to be tested by evolving geopolitical tensions and questions regarding the ability of a late stage economy to grow. Volatility is expected to remain elevated as the markets seek additional support for increasing asset prices beyond continued earnings growth and the perceived positive impact of tax cuts. However, the road ahead will likely be more challenging to navigate. While the economy, as measured by gross domestic product, continues to expand, and US equities are experiencing their second largest expansion in recent history, there are numerous challenges for investors to navigate going forward, including:

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‘Tis the season for tax-loss selling


December 5, 2018
Subject | ETFs | Invesco | Tax & Estate

As the year-end approaches, many investors with taxable accounts may be seeking to dispose of securities that have lost money. The strategy of tax-loss selling allows the investor to claim a capital loss, which offsets capital gains for the current year. Any unused net capital losses can then be applied against taxable capital gains in any of the three preceding years, or carried forward indefinitely to future years. To realize capital gains and losses in 2018, trades must be executed by Thursday, December 27 to ensure settlement by Monday, December 31, the last business day of 2018.

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During market drops, the Low Volatility factor has outperformed


November 23, 2018
Subject | ETFs | Invesco

In 2017, the S&P 500 Index did not experience any corrections greater than 5%. So far in 2018, there have been three such market drops. So which year represents the more typical investor experience? History shows us that the relative calm of 2017 was an outlier, and that losses and volatility are recurring events that investors should be prepared for.

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ETF trading: Keep an eye on volatility


February 1, 2018
Subject | ETFs | Smart beta

Our goal on the PowerShares ETF Capital Markets trading desk is to help our clients experience smooth and efficient ETF trades. In this blog series, I’m highlighting some of the most common guidance we provide. Today, I’m going to look at volatility – how it can distort the bid-ask spread, what to look for and how to get help.

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ETF trading: Get the right price


January 8, 2018
Subject | ETFs | Smart beta

It’s often said that exchange-traded funds (ETFs) “trade just like a stock”, but there are a few differences that can make buying and selling ETFs a little tricky, even for experienced investors. Here at Invesco, our PowerShares ETF Capital Markets help desk fields daily questions from advisors and institutional investors about how to trade ETFs more efficiently. I’ve compiled a few of the most common suggestions from those calls into a series of four blog posts.

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Supplementing bonds with quality dividends


November 24, 2017
Subject | ETFs

For income investors, the recent uptick in short-term interest rates served as a reminder that their bond portfolios remain vulnerable to risk. Rising interest rates tend to erode the value of a bond portfolio, leaving investors vulnerable to declines in portion of their portfolio which is supposed to be relatively safe.

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Volume does NOT equal liquidity. Here’s why


October 6, 2017
Subject | ETFs | Smart beta

Despite explosive growth in the use of exchange-traded funds (ETFs) in the last decade, a few persistent myths about them remain. On our ETF capital markets desk, for example, we often hear from advisors with liquidity concerns. The idea that volume equals liquidity persists among many investors, and advisors get a lot of questions about this from their clients. Let’s dispel this myth by looking a little deeper at the role of the market maker in ETF trading.

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Are smart beta ETFs skewing stock valuations?


July 28, 2017
Subject | ETFs | Smart beta

Thanks in large part to the popularity of smart beta and factor-based strategies, adoption of exchange-traded funds (ETFs) has grown rapidly in recent years. Some have even speculated that the growth of ETFs is skewing the valuations of certain stocks. I do not believe that is the case. Below, I explain why.

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Looking beyond the active-passive debate

Recently, one of Invesco’s funds – Trimark International Companies Fund – was singled out for praise as an example that true active management can outperform. While the kudos were well-deserved for the team, it appeared as part of a commentary that was otherwise unsympathetic to active management.

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Avoiding the equity income “dividend trap”


March 17, 2017
Subject | ETFs | Smart beta

Income-oriented stocks can provide investors with numerous advantages – including the potential for high, recurring income, a possible inflation hedge and added portfolio diversification. And while diversification does not ensure a profit or protect against loss, dividend stocks can serve as a significant source of investment returns. In fact, over the past two decades, dividends have contributed more than 40% to S&P 500 Index investors’ total returns.1

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Can investors have strong monthly dividend income with less volatility?


March 9, 2017
Subject | ETFs | Smart beta

Income can be tough to find in today’s market. And for many investors, a monthly dividend payment is their primary investment goal. With domestic opportunities offering fewer diversification benefits, many investors are looking beyond the local markets for dividend income with greater diversification.

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Q&A: What is factor investing?


February 28, 2017
Subject | ETFs | Smart beta

Factor investing has attracted a lot of attention from investors and media recently, but its roots can be traced back to the 1960s. As innovators in the factor-investing space, we believe in pushing the boundaries of portfolio construction with factor-based methodologies that go beyond traditional indices, allowing investors to target specific risk/return objectives with more precise portfolio-building tools.

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