Exchange Traded Funds (ETFs) dominate the holdings in most of our strategies. ETFs offer pinpointed exposure to a wide variety of asset classes (like stocks and bonds), regions, countries, industries, sectors and alternatives (like Real Estate Investment Trusts and Master Limited Partnerships). Each ETF can contain numerous securities within themselves. For example, an ETF that focuses on the biotech industry could contain tens or even hundreds of biotech stocks within that one ETF. As a result, an ETF can offer exposure to a particular market without as much risk as investing in one or a handful of individual securities.
The popularity of ETFs has exploded in recent years due to their liquidity, transparency and competitive fee structures. Investors can sell an ETF whenever they want without paying penalties; they can see the individual holdings of each ETF; and they can take advantage of lower fees, on average, than open-end mutual funds.
Closed-end funds are also utilized in some of our strategies. Closed-end funds are different than open-end mutual funds. Unlike open-end funds, closed-end funds have a set number of shares available to investors. Open-end funds can issue more shares as investor demand increases. Since closed-end funds have a limited number of shares available, their shares trade on exchanges like stocks. You can track their value live throughout trading sessions just like an individual stock.
Closed-end funds are actively managed by a portfolio manager who typically concentrates on a specific region, country, industry, or sector. In some of Secure Investment Management’s strategies, we compare ETF opportunities with closed-end fund opportunities and buy whichever fund has exhibited the best trend following, relative strength and risk management characteristics.
Individual stocks are only used in our most aggressive growth strategies attempting to achieve returns well into double digits. Stocks are typically more volatile and risky than ETFs and closed-end funds, due to their individual company risk and lack of diversification. However, we do use our risk management process in our stock strategies to help to prevent large losses.