But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Recommendation: Go broad, go deep when looking for opportunities
Given this monumental challenge, what’s a bond investor to do? We suggest these three approaches for potentially creating your desired outcomes.
Minimum volatility indexes seek to minimize the effects of the occasional gutter ball, allowing investors to focus more on their long-term investment objectives – the pins at the end of the alley.
So if a min vol strategy tends to outperform the broader equity markets when volatility is on the rise, yet underperform when volatility abates, wouldn’t it just be a wash? Not so fast.
When the equity markets were dropping, the min vol index acted as a cushion in these volatile markets, providing stronger relative performance.
The concept of most of these minimum volatility ETFs (or min vol, as we call them around here) is that they track indexes that seek to capture the broad equity market with a reduced amount of volatility.
“Minimum volatility” is often misunderstood as an investment that’s only useful during volatile markets, but there’s more to the story.
The extremity of the yield drop suggests it’s highly unlikely to have been caused by a wholesale re-evaluation of fundamental economic conditions.
A number of market watchers attributed Wednesday’s 10-year Treasury yield move to fears about a global economic slowdown, heightened geopolitical unrest, growing worry over the Ebola health risk and uncertainty about Fed policy.
Investors should be positioned for a slow growth environment, not another recession, and should consider raising allocations to assets that can still do well amid meager growth.
In addition, many market watchers are concerned about slowing growth in the Eurozone. While the region is unlikely to boom anytime soon, there are some signs that any further slowdown there should be modest.
Despite the recent global growth scare, a relatively strong U.S. economy continues to suggest that the Federal Reserve (or Fed) will tighten monetary policy sometime in the first half of 2015.
Though growth in most of the developed world, as well as in China, does appear to be decelerating, there are a few bright spots, including India and the United States.
The International Monetary Fund (or IMF), for instance, reduced its estimates for global growth, and many investors are now worried that another global recession could be on the horizon.
Italy’s ten-year government bonds spread against Italy’s ultra-safe German counterpart closed at 176 basis points on October 16. Yields on ten-year Italian bonds reached as high as 2.71% that day and closed at 2.58%.
After four years under a rescue program by the IMF, the EU, and ECB, Athens has largely repaired its finances.
While much of Europe is stuck in stagnation, François Hollande, the president of France, commented, “We are not doing reforms to please” but “because it is in our interest,” on Friday, October 17.
While the ECB is advising governments to spend more where possible under EU (European Union) rules, Germany wants governments to focus on reducing deficits.
In June, the ECB (European Central Bank) launched the TLRTO (Targeted Long-Term Refinancing Operation), which has a built-in incentive mechanism to encourage loans to firms.
Let’s now look at the issues that Draghi and his strategy currently face in Europe. Draghi’s strategy remains a big challenge for members of the EU (European Union).
Europe has more than one problem. Growth in the Eurozone stalled in the second quarter, following four quarters of sluggish recovery from a crisis over high government debt.