Recent market volatility has reminded many investors of the importance of diversification and the need for a strategic asset allocation plan consistent with their investment goals, timeframe and tolerance for risk. When implementing asset allocation strategies, we have found that it is becoming increasingly more common to utilize Exchange-traded Products (ETPs) for certain asset classes, styles and sectors. In fact, our proprietary target-risk model portfolio strategies at Hennion & Walsh Asset Management primarily use ETPs to implement each asset allocation. ETPs consist of Exchange-traded Funds (ETFs) and Exchange-traded Notes (ETNs). ETFs, for example, are mutual funds that generally track an underlying index and trade like stocks on an exchange (i.e. ETFs can be bought and sold throughout the trading day). ETFs provide a transparent, relatively low-cost way to invest in and maintain a potentially wide range of different index exposures.
ETPs themselves continue to grow in popularity among portfolio managers, financial advisors and individual investors. To this end, according to Index Universe, approximately 2/3 of advisors use some degree of ETPs in their portfolio strategies. According to the Investment Company Institute (ICI), as of August 2015, there are now 1,531 ETPs with nearly $2 trillion in assets. ETPs are now available for a wide range of equity asset classes, sub-classes, styles and sectors as well as fixed income, commodity and foreign currency categories on a long and short basis – some even employing different types of structural and effective leverage.
While Mutual Funds still dominate ETPs in terms of overall market share of assets, consider the following annual growth percentage increases, according to the ICI as of August 2015, of ETFs vs. Mutual Funds since 2001.
However, as with other security types, ETPs have their own unique set of risks and investors should educate themselves on the intricacies of the ETP marketplace and consult a professional advisor as appropriate.
Important Information and Disclaimers
Disclosures: Hennion & Walsh is the sponsor of SmartTrust® Unit Investment Trusts (UITs). For more information on SmartTrust® UITs, please visit www.smarttrustuit.com. The overview above is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any SmartTrust® UITs. Investors should consider the Trust’s investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information relevant to an investment in the Trust and investors should read the prospectus carefully before they invest.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.
The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITSs that primarily own and operate income-producing real estate.