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Fashion - Appropriate for your Wadrobe, not your Portfolio

August 25, 2020
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Fashion – Appropriate for your Wardrobe, not your Portfolio

Parker Gerard – Financial Advisor

Fashion is something I know almost nothing about. I mean, I try to match my belt with my shoes, and I’ve been told I shouldn’t wear white after labor day, but outside of the office I’m typically most comfortable in a pair of home-made jean shorts, an old T-Shirt, and a baseball cap. I would have no idea what the latest fashion trends are if you were to ask me. Maybe shorts because its summertime? Are graphic tees and basketball jerseys back in style? I see a lot of people wearing masks, maybe that’s the new trend?

We have seen some trendy and fashionable investment options begin to pop up in the marketplace so far this year.  Nobel laureate Eugene Fama said, “There’s one robust new idea in finance that has investment implications maybe every 10 or 15 years, but there’s a marketing idea every week.” So far this year we have seen the marketing teams at work, with the launch of a Treatments, Testing and Advancements ETF, ticker GERM, which seeks to provide exposure to biotech companies in hopes of capitalizing off of a Coronavirus Vaccine. We have also seen the launch of another ETF titled WFH, which seeks to invest in companies that will benefit from Work from Home orders across the world.  In addition, Index designer EQM Indexes has created not one, but four COVID related indexes: The Stay at Home Index, Work From Home Index, COVID-19 Stock Index, and the Global Pandemic Disruption Index which, “will prevail post the resolution of the COVID-19 global pandemic.”

We will see how these speculative investments play out, but investors need to realize that these fads are nothing new. In the early 1990’s, funds focused on the “Asian Tigers” of Hong Kong, Singapore, South Korea, and Taiwan. A decade later, we saw the emergence of the “BRIC” countries of Brazil, Russia, India, and China and their place in the global markets. In the 1950’s, the “Nifty Fifty” were all the rage. In the 1960’s, “go-go” stocks were popular and more recently, strategies focused on cryptocurrencies and cannabis industries have gathered interest among investors.

It is important to remain focused on the long-term outlook when making asset allocation decisions and avoid the temptation of short-term approaches that may be counterproductive to an investors long term goals. Consider that most investment vehicles do not stand the test of time and fail to survive over the longer term. Based on data from Dimensional’s 2020 Mutual Fund Study, of the 2,992 equity mutual funds around 15 years ago, only 52% still existed at the end of 2019. And earlier this year we saw that funds with catchy ticker symbols were not spared. In March, Janus Henderson closed two of their ETF’s with intriguing tickers – The Organics ETF (ORG) and the Obesity ETF (SLIM) after being launched less than 4 years ago. Mutual Funds and ETF’s are forced to close or liquidate typically due to lack of investor interest, limited assets, or poor performance which puts a burden on the end-investor and can create a tax event if the funds were held in a taxable account.

We encourage our clients to avoid chasing the shiny object, and when creating portfolios, we like to use solutions that are backed by robust academic research. Trends will come and go, but in the end, markets typically have rewarded the disciplined, and patient long-term investor.

Asset allocation does not protect against loss of principal due to market fluctuations. It is a method used to help manage investment risk. Please note that all investments are subject to market and other risk factors, which could result in loss of principal. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Evolve Advisor Group is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC.