Some advisors adjust asset allocations only for periodic rebalancing, but others see opportunities in the market and want to take tactical advantage of them. For the second group, exchange-traded funds can be ideal. While ETFs don’t eliminate market risk, their broader-based portfolios can mitigate company and sector risk.
“If you want to be aggressive, then you can certainly take a narrow sector,” says Morris Armstrong, owner of Armstrong Financial Strategies, an RIA in Danbury, Conn. He used a Japanese equity ETF last year to make such a tactical play. But, he cautions, no matter how you approach tactical allocation, you have to first be allowed that flexibility in your investment policy statement.
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