May is a seasonally weak month for the stock market, hence the
adage, "Sell in May and go away." We asked several asset managers
to share their best ETF investing idea, assuming a sell-off sets
, president of Pacific Park Financial in Aliso Viejo, Calif.,
with $90 million in assets under management:
Based largely on excessive exuberance for central bank policy
trumping the litany of bad news, I am firmly in the "go away"
camp. I have been lightening up on risk assets throughout
A 5% pullback off of the highs is the least that investors
should expect in U.S. stocks. ETF selection should be
conservative and/or unique in nature. My selection is based
largely on last year's pattern of holding up well during the 2012
May-June gloom "correction."
Big pharmaceuticals fit the bill then, and I expect a repeat
in relative performance. I would run withPowerShares Dynamic
) with the caveat that I do not buy and hold and use trailing
There's not much economic cyclicality in pharmaceuticals. In
2012's May-June gloom when the S&P 500 shed 8.5%, PJP
actually gained several percentage points. I wouldn't necessarily
expect gains in a broader-based correction, but you would likely
see relative outperformance.
, director of ETF research at Zacks Investment Research in
With major indexes near record highs, it is quite possible
that the market may take a breather for some time. Furthermore,
some of the recent reports reveal that the economy slowed down in
March after showing strong momentum in January and February. And
the situation in the eurozone remains uncertain.
At the same time, massive easing by the Federal Reserve, which
has been the main force behind the rally, is likely to continue
for the time being. Further, stocks still look quite attractive
in terms of valuation compared with some other asset class.
However, with so many uncertainties hovering over the market
and significantly lower trading volumes during summer months, I
think that market volatility will go up in the coming weeks.
PowerShares S&P 500 Low Volatility (
) tracks the performance of 100 stocks from the S&P 500 with
the lowest realized volatility over the past 12 months. It has
beaten the broader market year to date with a 15.21% return vs.
11.51% for SPDR S&P 500 (
). Its dividend yield is 2.64% currently, compared with 2.00% for
For longer-term performance, I looked at the historical data
for the index that this ETF tracks. S&P Low Volatility index
significantly outperformed the broader market with an annualized
total return of 10.61% compared with 6.60% for the S&P 500
index, over the past five years.
Further, its volatility was much lower at 12.75% (annualized)
vs. 18.99% for the S&P 500 index. However, low-volatility
strategies underperform in very strong bull markets.
, portfolio manager at Holderness Investments in Greensboro,
N.C., with $96 million in AUM:
If we get a sell-off this spring, one ETF we are bullish on
isPowerShares DB U.S. Dollar Index Bullish (
). The U.S. will continue to be a safe haven in the world
economy, and we have seen investors buy the U.S. dollar as a
"risk off" trade when the equity market runs into trouble.
The dollar has also shown strength lately, given the very
aggressive rhetoric and action of Shinzo Abe, prime minister of
Japan, and the Bank of Japan. Their 2% target inflation goal has
led to a sharp depreciation of the yen, and thus, appreciation of
Europe is struggling with recession and fiscal troubles, and
these issues have weighed on the euro. The market shrugged off
news from Cyprus, but we feel there is still significant risk in
Europe. If the world is in a "risk off" mood, headlines out of
Europe could drive Europe and the euro lower. This will also
support the dollar.
The Fed may possibly change its (quantitative easing) policy
as early as the end of the year. Once the Fed eventually pulls
back and the economy becomes more self-sustaining, we think this
will further support the dollar's value. Historically, there has
been a moderately positive correlation between the dollar and
, managing director at Forefront Global ETF Strategies in New
York with $120 million AUM:
Generally, following strong fourth-quarter momentum, market
fund flows generally are strongest in the first quarter due in
part to 401 (k) investing, and then summertime blues come around
and investors go on vacation.
Measuring how steep a pullback might be is challenging,
especially since global central banks are now all providing so
much economic stimulus. Clearly, part of the issue for selling in
May is finding a compelling investment beyond just cash.
PowerShares Senior Loan Portfolio (
) yields about 4.75%. I don't know when rates will go higher, but
ultimately if central banks are successful, gross domestic
product growth is going to strengthen and higher interest rates
will follow. This asset class is also not highly correlated to