Can a 'Smart' ETF Protect You From Market Turbulence?
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What is the main topic discussed in this episode?
With your Money Briefing, I'm J.R. Whelan at The Wall Street Journal in New York.
What market context prompted interest in 'smart' ETFs?
Compared to the fourth quarter, these are happy days on Wall Street with the S&P 500 up more than 10%. But investors have learned their lesson from past market downturns, and they're seeking smart places to invest. We've got a few ideas. That's coming up. First, these money and market stories you should know. A report from actuaries at the Centers for Medicare and Medicaid Services says health care spending in the U.S. is expected to accelerate over the next eight years as baby boomers age and their prices for medical services grow. And that's likely to further shine the spotlight on health care as a significant issue in the 2020 election. Health care's share of the economy is projected to climb by
Which economic and consumer trends are influencing investors' safety concerns?
to 19.4% by 2027 from about 18% in 2017. And spending is likely to grow because of new drugs on the market, more seniors who will need hospital care, and an expanded Medicare population that will drive demand for clinical services and doctors. And the Wall Street Journal Real Estate Bureau focuses on one of the wealthiest streets in the Northeast. a stretch of 11th Street in Manhattan between West 4th Street and Bleecker Street that's home to celebrities like actress Sarah Jessica Parker and actress Liv Tyler. Parker and her husband, actor Matthew Broderick, bought a double-wide property on the block in 2016 for $34.5 million. Two doors down from Parker is a $27 million property owned by Sprint CEO Marcelo Clore.
Real estate agents cite no ground-level retail as an alluring factor of the area, since it limits foot traffic. The brownstone-lined stretch of West 11th Street is anchored on one side by Magnolia Bakery, made famous on Sex and the City, and a high-end bookstore founded by fashion designer Marc Jacobs.
After a rough fourth quarter, the S&P 500 is up 11% so far in 2019.
What are 'smart beta' or low-volatility ETFs and how do they work?
That's good news for investors, but it hasn't chipped away at the need to find safe places to put money in case of another steep downturn. Perhaps an ETF for exchange-traded fund that tilts away from too much risk is the solution. And Wall Street Journal reporter Ajlan Loder is here with details. So, Ajalan, ETF issuers, as you write in your story, have been trying for some time to attract cost-conscious customers, and last quarter's downturns seemed to jumpstart that effort.
Definitely. ETF issuers have been trying for a while to get people to buy into strategic beta or smart beta or whatever you want to call it. And these are funds that they might try to invest based on a factor like momentum or value or quality. In this instance, what investors seem to be flocking to are funds that attempt to pick less volatile stocks, which would help in a turbulent market.
And a few ETFs with a profile that could be seen as being safe by some, they've seen their holdings rise to record highs.
I wouldn't call them safe. The idea is that they invest in some of the stocks that have been less volatile.
Have low-volatility ETFs performed better during recent downturns?
It doesn't necessarily make them safe, but they've outperformed the broader market over the past year, and they certainly did in the fourth quarter as well, which is why it's really gotten them on the radar. But if you look so far this year, because the market's up, two of the more popular ETFs are lagging the S&P 500.
And these ETFs with less volatility, they've been around for a while. They weren't created in response to the downturn. Is that right?
This concept of factor investing has been around for a while, and these ETFs have been around for years. It's just that they came on the market during one of the longest bull runs in history. So people haven't really seen a need to think about their downside risk in quite some time. And last year, it really changed that mindset.
And it's important to note that not all ETFs have a safe or less volatile feel to them. Many have a healthy dose of risk.
They all do.
What risks and trade-offs should investors know about low-volatility ETFs?
These are equity ETFs. It's important to remember that these aren't billed as safe or even safer. They're billed as attempting to pick the lower volatility stocks, those that are less turbulent.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
What market context prompted interest in 'smart' ETFs?
0:09–0:49
3
Which economic and consumer trends are influencing investors' safety concerns?
0:49–2:06
4
What are 'smart beta' or low-volatility ETFs and how do they work?
2:06–3:12
5
Have low-volatility ETFs performed better during recent downturns?
3:12–3:59
6
What risks and trade-offs should investors know about low-volatility ETFs?
3:59–4:51
7
How can listeners learn more and where can they read the full WSJ story?
4:51–5:02
Speakers
2 identifiedMore from WSJ Your Money Briefing
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