How to Outperform the Market and Manage Risk With ETFs

Thanks to the explosion of exchange-traded funds (ETFs), there is a revolution taking place in the passively managed funds business.

Many people view ETFs as a lazy way to invest. Indeed, if all you want is an index -based portfolio, then ETFs offer that with built-in underperformance, thanks to the fees that they incur. However, ETFs, while somewhat static, can provide active management strategies to investors who seek to dynamically outperform their target benchmark or inject risk management into their portfolios. Here are two ways to accomplish those goals.

How to Use ETFs for Rapid Asset Reallocation

In past lessons, I have discussed the need to periodically review your portfolio and reduce the risk of excessive exposure or reallocate assets to other sectors.

A two-step process is undertaken when reallocating assets. Step one: Identify which sector or asset class needs to be reduced or eliminated and determine its replacement. Step two: Identify the individual securities you'll invest in. While the first step is a relatively quick process, the second step can longer. This creates an overall lag in the investment decision-making process. ...