The following are new investments that those saving and or living in retirement might consider for their portfolios. We've included commentary from advisers about the investments, as well.
Pacer Funds has filed with the SEC to offer four ETFs implementing seasonal sector rotation strategies. The Pacer CFRA-Stovall Global Seasonal Rotation Index ETF, the Pacer CFRA-Stovall Small Cap Seasonal Rotation Index ETF, the Pacer CFRA-Stovall Large Cap Seasonal Rotation Index ETF and the Pacer CFRA-Stovall Equal Weight Seasonal Rotation Index ETF would be linked to Standard & Poor's indexes. SmartBrief/ETF
"Generally, I am skeptical of sector rotation funds as there is an element of market timing as they are traditionally used," says Steven Gattuso a senior portfolio manager at Courier Capital.
That said, many sector rotation strategies revolve around generating income. And, for people living in retirement, Gattuso says, an income component would be a reason to consider these funds.
Now the Pacer funds' rotation is a little unusual, according to Gattuso. It's based on calendar dates and its movement is only between six of the 10 sectors. The fund, he says, is invested in consumer discretionary, industrials, information technology and materials for most of the year and then rotates to consumer staples and healthcare from May through October.
"What is unusual is that there is no macroeconomic or business cycle signals to rotate but simply the change in the calendar dates," says Gattuso. "Moreover, the sectors of financials, real estate telecommunications and utilities are left out of the rotation and these are the heavy dividend paying sectors."
The rotation may lead to capital gains issues in taxable accounts, but this won't be a problem in a tax-deferred retirement account, he says. Still, the concentration risk of the sectors might be a little too aggressive for retirement assets, says Gattuso.
Goldman Sachs has filed with the SEC for an ETF buying US Treasury Inflation-Protected Securities. The Goldman Sachs Access Inflation Protected USD Bond ETF would be linked to a FTSE Russell index. Smart/ETF
According to Gattuso, there are many TIPS funds and ETFs that are already available to investors.
And now Goldman Sachs is coming to the party as well. "In general inflation protection is a valuable fixed-income asset class to include in a retirement portfolio, whether you are saving for retirement or already in retirement as it helps to maintain the purchasing power of your fixed-income cash flows," says Gattuso. "The TIPS, however, are still fixed income and in a rising rate environment holding long duration bonds could still result in unfavorable performance."
The Goldman Sachs fund, he says, looks like it will be longer-term as it states that it is buying TIPS that are beyond a one-year maturity. "An investor might be better served to look for shorter-dated TIPS in the current environment," he says.
WisdomTree has filed with the SEC for three ETFs applying multifactor strategies to international markets. The WisdomTree Global Multifactor Fund, the WisdomTree International Multifactor Fund and the WisdomTree Emerging Markets Multifactor Fund would be actively managed and would rely on models that incorporate technical, quality and value factors. SmartBrief/ETF
Gattuso says the WisdomTree ETFs are applying the popular factor-based, rather than traditional market capitalization-based approach to the global, international and emerging market spaces. "These funds may be worth consideration for retirement accounts as they will increase exposure to international markets where U.S. based investors are traditionally underrepresented," he says. "In addition, they will provide this exposure in a way the incorporates a rules-based approach to a company's value, quality of earnings and momentum."
This factors, according to Gattuso, each tend to each perform differently at different stages of the business cycle and by incorporating these factors the rebalancing will shift allocations between them. In addition, he says, the ETFs are currency hedged which may put a drag on performance but traditionally dampens volatility to a U.S. investor.
Hartford Funds launched Hartford Schroders Tax-Aware Bond ETF (HTAB). Sub-advised by Schroder Investment Management North America Inc., Hartford Schroders Tax-Aware Bond ETF seeks total return on an after-tax basis by investing in a diversified portfolio of taxable and tax-exempt fixed-income debt instruments of varying maturities.
While fixed income has diversification benefits to equities in portfolios, this particular fund might not be appropriate in retirement accounts, says Gattuso. "The reason is that most retirement vehicles already have the benefit of tax-deferral, or tax exemption, so the benefits of non-taxable fixed income are not useful in these types of accounts," he says. "While there is sometimes relative value of tax-exempt bonds versus traditional taxable bonds the majority of the purpose of this ETF in being tax aware is not beneficial in retirement accounts."
You could, of course, consider it for a taxable account.
Principal Financial Group has introduced the Principal Investment Grade Corporate Active ETF, listed on the NYSE Arca with an expense ratio of 0.26%. The ETF can invest in foreign and domestic government debt, but corporate debt is its main focus.
This ETF has several benefits which may valuable to investors saving or living in retirement accounts, says Gattuso. "The main benefit of investment grade fixed income is high quality bonds that offer diversification benefits to equities," he says. "In addition, this fund is actively managed and includes foreign as well as domestic issuers."
This gives the manager a large universe of possible investments for ETF diversification. "In addition, this active management is provided at a very low cost of 0.26% per year," says Gattuso. "These elements make this fund worthy of consideration as a core bond ETF for a retirement portfolio."
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