Strategists from the growing exchange-traded fund managed portfolio industry spoke Thursday at Morningstar’s ETF Invest Conference on topics ranging from the state of the market, the processes they use in assembling portfolios, and the importance of educating financial advisors about how ...
The name of the session was "Where in the World Are Go-Anywhere Managers Going?" and when asked by moderator Andrew Gogerty of Morningstar their impressions of the current market environment, panelists were universal in their condemnation of bonds.
"When you look at historical times, when yields have been anywhere near this, you've lost money 100% of the time," said Michael Jones, chairman and CIO of Riverfront Investment Group. He said today's low-rate environment could last a decade and that his firm has been wading into low-volatility equities as a way to blunt bond exposure.
Michael Vogelzang, president and CIO of Boston Advisors, said his firm expects bonds to average 2.1% returns during the coming decade versus about 7% for stocks. He noted his company has been long in U.S. equities while underweighting Europe and emerging markets but that it has started to increase its stake in those latter two areas. Vogelzang also said he likes Poland, based on valuations and beta, and gold as long as real interest rates remain negative.
Jones said his firm is keeping a close eye on the European sovereign debt crisis, adding that if the continent's leaders can bring the problems under control, it could unlock growth there.
Brian Huckstep of Ibbotson Associates said that even though 2012 has been a very good year for momentum investing, the market looks close to fully valued from a fundamental standpoint.
Importance of education
All on the panel agreed that education is paramount in making sure their products are used properly.
Jones said it's important that providers of ETF managed portfolios have discussions with advisors early on about how to use them. He said financial advisors typically use his firm's portfolios as the core of a client portfolio, adding satellite holdings around it, with larger customers doing the reverse, building their own cores and using his firm's offerings around those.
Thomas Crandall, portfolio manager for Quantitative Advantage, said educating advisors on using his firm's tools represents "our biggest challenge and our biggest opportunity."
Jones added that his firm urges advisors who might be skeptical of using such products to "diversify your genius."
Assets in ETF managed portfolios, which are investment strategies that primarily use exchange-traded funds, have risen sharply, up to nearly $50 billion as of June from $33.6 billion nine months earlier.