ETF News

Risk, as a concept, is something we deal with in our everyday lives, so we take the necessary steps to manage it to the best of our ability. Similarly, within the realm of investing, it is impossible to eliminate all risk exposures that could impact one’s portfolio, but there are investment solutions, such as ETFs, that allow investors to right-size their risk exposure to a level that is attuned to their investment goals. This article will focus on how ETFs can be used to manage risk within one’s portfolio and provide examples of current solutions investors can utilize.  

Managing one’s portfolio with ETFs

ETFs were originally developed to provide pricing transparency and enhanced liquidity for investors, but their proliferation has allowed the public to utilize these investment instruments in a variety of ways that address critical portfolio construction, such as:

Core Asset Allocation Exposure

One of the primary advantages of using ETFs for asset allocation is their ability to provide exposure to a diversified range of assets, such as stocks, bonds, commodities, real estate, etc., within a single investment vehicle. For investors looking for a comprehensive exposure to a particular market segment, an ETF can be a pathway of least resistance to a broad investment universe and an efficient avenue to manage one’s exposure risk exposure within a particular asset class.  

For investors seeking a solution that provides holistic, global exposure to the bond market, the AGF Global Opportunities Bond ETF (Ticker: AGLB) employs a go-anywhere investment strategy that enables the fund to be tactical and focused on the best opportunities across all fixed income categories around the globe. For equities, the BMO Global Equity Fund (Ticker: BGEQ) is an actively managed, globally focused solution that reflects the top ideas from each sector to create a core solution that can tilt towards value or growth companies depending on market conditions. 

Sector and Strategy Exposure

In managing one’s portfolio there may be a desire to have specific exposure to a particular sector, or equity securities that reflect a particular investment attribute, ETFs provide investors with the ability to attain these niche exposures in a manner that is economically prudent while being comprehensive in nature – avoiding the risk of gaining said exposure in a piecemeal fashion. For example, given the strong performance of the technology sector, if an investor wanted an ETF that provided pure-play exposure, the TD Global Technology Leaders Index ETF (Ticker: TEC) would be of worthy consideration, given its global focus on all mid- and large-capitalization companies related to technology. However, if an investor desired a more specific technology exposure, such as semiconductors, then a solution such as the Horizons Global Semiconductor Index ETF (Ticker: CHPS) would allow for that.

Regarding equity securities that reflect specific traits, low volatility ETFs are an example of a distinct investment style being made available to investors in a single-ticket solution. Low-volatility portfolios are comprised of stocks that are less volatile than their peers, which means that on a risk-adjusted basis, they should exhibit superior performance and provide exceptional returns relative to other portfolios. Against the backdrop of an uncertain macroeconomic environment, investors interested in managing their portfolio’s overall risk exposure would benefit from low volatility’s proven investment strategy that provides them with innate risk mitigation and a selection of equities best suited to thrive during the ups and downs of an economic cycle. An example of such a solution would be the Fidelity U.S. Low Volatility Index ETF (Ticker: FCUL), which invests in large and mid-capitalization U.S. companies with lower volatility than the broader U.S. equity market. 

Total Portfolio Management

While ETFs can be used as building blocks for a portfolio, managing the totality of one’s portfolio can be a daunting task. Instead, investors have the choice of leveraging the expert portfolio management expertise of others to achieve their investment goals. Strategic asset allocation is a target allocation of asset classes you expect to have in place for a long period of time. The target allocation is expected to remain the same and the portfolio is rebalanced to the original allocations when they deviate significantly from the initial settings due to differing returns from the various assets. Strategic asset allocation looks more at the overall risk objective of the portfolio and therefore takes a long-term view.

For investors seeking complete portfolio solutions capable of managing total portfolio risk, while maintaining investment goal and risk tolerance alignment, then the Fidelity All-in-One ETFs suite is worthy of consideration. Designed with a multi-asset strategic focus, the four ETF portfolio offerings allow for investors to have exposure to equity, debt, and digital assets; diversified across geographic regions, market-caps, and investment styles. Interested investors can choose their preferred portfolio based on their desired asset allocation and stated risk-tolerance level.

The Fidelity All-in-One ETF Conservative ETF (Ticker: FCNS) asset allocation is 59% global fixed income, 40% global equity, and approximately 1% cryptocurrencies.  

The Fidelity All-in-One ETF Balanced ETF (Ticker: FBAL) asset allocation is 59% global equity, 39% global fixed income, and approximately 2% cryptocurrencies.

The Fidelity All-in-One ETF Growth ETF (Ticker: FGRO) asset allocation is 82% global equity,15% global fixed income, and approximately 3% cryptocurrencies.

The Fidelity All-in-One ETF Equity ETF (Ticker: FEQT) asset allocation is 97% global equity and 3% cryptocurrencies.

Please note that Fidelity ETFs will be used to derive the market exposures of each portfolio. If a portfolio deviates from its intended asset mix by more than 5% between annual rebalances, then it will be rebalanced at the earliest point in time, determined by the manager.

In managing portfolio risk using ETFs, it is important to remember that the goals and preferences of the individual investor will be key. Whether they are looking to gain broad market exposure, take positions in specific strategies, or potentially utilize a pre-designed solution that aligns with their risk tolerance, ETFs can plan an additive role is managing portfolio risk and growing one’s investment wealth over time. 

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.