NEW YORK (Fabian Capital Management) -- The midpoint of the year is often a great time to step back and assess your exchange-traded funds portfolios' strengths and weaknesses relative to your investment goals. With six months of data in the rear-view mirror, you can clearly evaluate your best- and worst-performing positions to determine if changes need to be made or new opportunities sought out.
In addition, many savvy investors take this time to rebalance existing positions or reinvest quarterly dividends as a result of distributions that are sure to be hitting your brokerage account in the near future. All of these small changes can add up to a great deal of performance enhancement as we make our way through the latter half of the year.
The first step in this process is to review every position in your portfolio. This is particularly important as the market sits near all-time highs and has gone nearly 20 months since testing its 200-day moving average.This year has presented some wide divergences amongst individual sectors, market caps, and asset classes. A quick look at the nearly 5% gap between the 6.39% year-to-date gain in the SPDR S&P 500 ETF (SPY) and the 1.48% gain in the iShares Russell 2000 ETF (IWM) shows just how much different this year looks from 2013. The initial bout of volatility that we experienced in the first quarter truly shifted the market mindset from chasing fast growth stocks to repositioning capital in stalwart dividend paying companies. We are also seeing marked strength in defensive sectors such as the Utility Select Sector SPDR (XLU) over high beta themes such as the Consumer Discretionary Select Sector SPDR (XLY). The multi-year low in the CBOE VIX Volatility Index (VIX.X) is another cautionary warning sign that we may be due for another modest wave of fear in the near future as well. If you find yourself still overweight high-beta areas such as small-caps, Iternet stocks or retail sectors, you may want to consider paring back those positions in light of their recent underperformance. If we do see a more persistent pullback this summer, those weaker names could certainly lead on the downside.
One potential conservative equity alternative is the PowerShares S&P 500 Low Volatility Portfolio (SPLV), which has continued to hold up quite well this year and offers a monthly dividend stream as well. This offers you the ability to still participate in an equity ETF with potentially less risk than a fully-loaded stock index.
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