New Active ETF for All Risk Environments


Even though the stock market is in the fifth-year of a bull market and the S&P 500 is 200 percent from its low, there has been and will be more pullbacks. Timing the market to take advantage of the strong rallies and vaunted sell-offs is not an easy task for the average investor.


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The newest ETF from State Street Global Advisors, the second largest U.S. ETF issuer, attempts to take advantage of market fluctuations. The SPDR SSgA Risk Aware ETF is an actively-traded fund that will determine market risk via a quantitative strategy.

If the ETF determines the market is about to experience above-average risk the portfolio will be composed of defensive positions. On the flip side, when the numbers suggest that a risk-on approach is the best way to play the market the portfolio will be more heavily invested in growth and small-cap stocks.

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The new ETF has 179 holdings across nine industries with its top holdings consisting of some of the largest corporations in the country. The universe of stocks eligible for the portfolio are from the Russell 3000 index.

The top four include Apple Inc. (NASDAQ:AAPL) with a 2.7 percent holding, Exxon Mobile Corporation (NYSE:XOM) at 1.9 percent, Microsoft Corporation (NASDAQ:MSFT) at 1.8 percent and Johnson & Johnson (NYSE:JNJ) totaling 1.3 percent. For some investors a fund such as this could be a replacement for the traditional large-cap ETF in a portfolio.

Endless and ever-changing factors determine certain sectors to be risky or not risky. A fund such as RORO would afford investors the opportunity to better position themselves to capitalize on a change of risk within the market. An expense ratio of 0.50 percent is very favorable for an ETF with such a unique strategy.

In short, the ETF will attempt to offer investors a smoother ride and eliminate the losses that are typically suffered during a risk-off environment. At the same time, if the ETF does its job it will also allow an investor to take advantage of big market gains when the trend is higher.

Such performance of course is in a perfect world. In the real one investing and perfect do not go together.

Investors should consider watching the performance of RORO for a few weeks to see how it performs during a market rally and pull back before dedicating new money into the ETF.

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