Portfolio Protection

Professional investors hunt for new opportunities for all kinds of compelling reasons. For one, new products can significantly boost returns. At the same time, such discoveries can often provide greater diversification and, as a result, greater protection for portfolios.

A consultant to retail, financial services, and investment management firms, McKenzie M. Slaughter says she launched her New York-based research, education, and consulting firm Beyond Capital Markets (www.beyondcapitalmarkets.com) last September to help private investors, hedge and pension fund managers, and other institutional clients examine asset classes that are off the beaten path. Along with her five colleagues, she scouts and analyzes opportunities in liquid alternatives, real estate, private equity emerging markets, and traditional alternatives.

Slaughter says individual investors can also get in on the act through exchange-traded funds, or ETFs, baskets of holdings in a wide variety of assets that trade like stocks. She likes ETFs as a cost-effective way to expose portfolios to alternative asset classes. An ETF investment can spread money across a variety of holdings and track an index of stocks, bonds, currencies, or commodities. Slaughter prefers diversified ETFs since single-sector, concentrated holdings are “more prone to market swings” and are higher risk investments. She also likes low expense ratios–typically 1% or lower–for the best-managed ETFs.

To the average investor, Slaughter points out, ETFs are a relatively new investment. She recommends several resources where investors can research them, including Fidelity’s ETF screener (http://screener.fidelity.com/ftgw/etf/evaluator/goto/landing), ETFTrends.com, and Morningstar.

1 SPDR S&P Emerging Markets Dividend ETF (EDIV) The growth of emerging market economies in countries such as China, Brazil, India, Russia, and South Africa offers investors a potential high-return opportunity. As such, the SPDR S&P Emerging Markets Dividend ETF tracks the performance of the S&P Emerging Markets Dividend Opportunities Index as closely as possible and is spread across several global regions including Asia, where 50% of the portfolio is invested; Latin America, with a 25% slice; Europe, with 12%, and Africa, with 9%. The ETF offers investors a way to capitalize on low Treasury yields, and generally invests in the 100 highest yield emerging market stocks that make up the Index and that represent industries such as utilities, telecommunications, financials, industrials, and healthcare. It is not limited to those funds, however. At press time, the largest holdings included Eletropaulo Metropolitana Eletricidade de Sao Paulo (3.04%), and Korea Exchange Bank (3.03%). The SPDR ETF has returned just over 10% since its inception in February while keeping expenses to a modest 0.59%.
PRICE AT REC.: $54.50  -  P/E: 11

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