Why Volatility Has Returned to the Market

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

And the Volatility Comes Roaring Back

It’s baaack! That’s right, the volatility in the markets is back. After a January that witnessed a big decline in the major indices of more than 3% nearly across the board, the gains this week — the first week of February — now have brought the major indices back into positive territory for 2015.

If we take a look at the chart here of the Vanguard Total World Stock ETF (VT), a fund that represents the entire international and domestic equity market, we see that the trading during the past week now has brought the fund back above both the 50- and 200-day moving averages.


This is significant, as it shows that both international and domestic stocks want to go higher despite the significant headwinds of a slowing global economy, the rising U.S. dollar and tumbling oil prices.

Now, as for those oil prices, this week we saw a significant rebound in the cost of a barrel of crude oil, a welcome change for equities after the massive plunge in the segment during the past six-plus months. The rebound in oil prices helped give markets the sense that global demand wasn’t falling off a cliff, and that was reason enough for money to come back into equities.

Things were much different on the bond front, as we finally witnessed a crack in the bond bull’s hoof. This week the benchmark iShares 20+ Year Treasury Bond (TLT) fell substantially, down more than 4% as money is rotating out of bonds and into equities. An upbeat jobs number released this morning gave traders the idea that the Fed is very likely to raise short-term interest rates by September at the latest, hence the decline in bond prices.


The return of stocks into positive territory for the year, the rise in oil prices and the decline in bonds — all in just one week — show that the volatility definitely is back in financial markets. It also means that you need to be more vigilant than ever when it comes to making sure you have the right mix of international stocks, domestic stocks, commodities and fixed-income assets in your portfolio.

If you are worried about your money, and if you’re concerned about what to make of this volatile market week, then I invite you to check out my Successful ETF Investing newsletter today.

For some time, my readers have been taking advantage of the action in foreign markets, in gold and in fixed-income sectors other than simply traditional Treasury bonds. If you’d like to do the same, then Successful ETF Investing is for you.

Toward Smarter-Beta ETFs

I recently attended the largest ETF conference in the country, and the nearly 2,000 attendees all were focused on how to make the most of ETF investing. There was a tremendous lineup of speakers, a wide array of topics were discussed and just about every ETF issuer was in attendance.

In the weeks to come, we’ll be covering many of the following in greater detail. But today, I wanted to start out with one of the biggest trends I see developing in the ETF industry, and that is smart-beta funds.

Smart-beta ETFs have become all the rage in product development from the ETF industry. Basically, smart-beta funds represent an altered version of traditional market-cap weighted index funds.

WisdomTree, PowerShares and iShares all have developed new product offerings with a smart-beta spin. The idea of smart beta is to construct portfolios toward a more specific outcome, such as enhanced return, greater risk reduction, higher income generation or improved diversification.

The growth of smart-beta ETFs has been remarkable of late, and I can certainly understand why. Everyone is looking for a little extra performance out of their money, and smart-beta products offer just that. The most recent data from the ETF industry suggests that smart-beta funds now represent 20% of all assets in ETFs, or more than $400 billion.

Some great examples of smart-beta ETFs include the Guggenheim S&P 500 Equal Weight ETF (RSP) and the PowerShares S&P 500 Low Volatility ETF (SPLV), but there are hundreds of these smart-beta funds available today, and I suspect there will be many more in the years to come. And of course, this is a trend we’ll be watching and reporting on for you, the Weekly ETF Report reader, so you never miss out on investable ETF opportunities.

On Character

“To find a man’s true character, play golf with him.”

–P. G. Wodehouse

The “misremembered” episode of NBC News anchor Brian Williams is just the latest “character” incident that’s invaded the public conscience. And though this is a heavy subject indeed, maybe we should lighten things up and take a cue from the great English humor writer P.G. Wodehouse. Because as Wodehouse suggests, you can find out a lot about a man’s character by seeing how he reacts to the frustrations and foibles that arise on the golf course.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about how ETFs fared in January. I also invite you to comment in the space provided below.

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