Risk Chase Slows Down: A Good Time to Review ETFs Across Asset Classes

by: MyPlanIQ

Making tactical asset allocation decisions based on major asset price trends is an effective way to achieve reasonable returns while reducing risk. Recently, risk assets have been on a tear. It began with the year-end rally, but now most risk assets are showing fatigue. Last week, except for U.S. equities, most risk assets had negative returns. Markets are trading in a sideways fashion.

No one has a crystal ball to predict future movement. What one can do, however, is manage portfolios properly. As we enter the new year with elevated markets in most risk assets, it is a good time to review your portfolios.

It is especially important to look at your portfolio allocation mix and adjust the portfolio risk. An overly aggressive portfolio, if not re-balanced back to a risk level investors are comfortable with, can suffer a big loss in a market downturn. With a risk one cannot accept, many people sell at the worst time. Some people decide to "ride it out," aking years and years to recover the loss. On the other hand, a portfolio with an overly conservative stance might forgo some gains. With markets getting to a bubble state, some people eventually decide to "join the party" at the worst time.

It is thus very important to begin your investment process with proper risk assessment and periodically review and manage your portfolios. Given the current market conditions, it is a good time to review your strategies and portfolios.

In the following table, one can clearly see that all risk assets had their trend scores reduced last week. The "riskiest" assets like frontier market stocks (NYSEARCA:FRN) and commodities had over 1.5% negative returns. Beaten down "safe" assets like municipal bonds (NYSEARCA:MUB) and investment grade bonds (CFT, CIU) recovered a bit. Though this is still a short-term phenomenon and we don't know if this is the beginning of a trend change, it serves to remind those who need a portfolio checkup. Additional asset-class performance info can be found here.

Assets Class Symbols 01/07
US Stocks VTI 10.18% 11.81% v
Frontier Market Stks FRN 9.72% 14.92% v
US Equity REITs VNQ 9.17% 11.39% v
International REITs RWX 8.44% 13.06% v
Emerging Market Stks VWO 8.03% 11.92% v
Commodities DBC 7.98% 12.4% v
Gold GLD 5.84% 11.49% v
US High Yield Bonds JNK 4.08% 4.6% v
International Developed Stks EFA 2.76% 7.24% v
Emerging Mkt Bonds PCY 1.44% 1.6% v
US Credit Bonds CFT 1.17% 1.14% ^
Intermediate Treasuries IEF 0.43% 0.19% ^
Treasury Bills SHV 0.03% 0.05% v
Total US Bonds BND -0.07% -0.07% v
Mortgage Back Bonds MBB -0.89% -0.66% v
International Treasury Bonds BWX -0.96% 2.93% v
Municipal Bonds MUB -2.38% -2.8% ^

click all to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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