What the Smart Money Doesn’t Know

Many people have been buying stocks in 2021, celebrating the partial retreat of the pandemic and reopening of economies.

ETFs tell the story well. By the end of August, net inflows reached US$834 billion globally, according to ETFGI – higher than the US$762 billion taken in all of 2020¹.

But with stocks near all-time highs, I detect a touch of nervousness in the air. Investors are asking me whether they should be selling. Is it time to take my profits? After all, the MSCI World index of leading stocks has nearly doubled since their March 2020 lows, when Covid-19 spooked markets.

The answer to these questions is never straightforward, and even the smartest money is often wrong footed. For much of 2021, the view has been that with interest rates so low, there is no alternative to stocks. So, high equity values are justified. In fact, there could be room for them to move still higher.

Certainly, many of the world’s biggest companies have recently reported bumper profits, vindicating the buoyant markets. And, in the past, these stock price rallies have often carried on for far longer than anyone thought possible.

Yet, there are notes of caution. Only this week, a survey of over 550 market professionals conducted by Deutsche Bank predicted a 5%-10% sell-off in markets by the end of the year.²

Dancing with bulls and bears

What this means for the average investor is, in my opinion, that you should dance with both the bulls and the bears – in other words, stay invested, do not try to time the markets and rely on the long-term upwards movement (even though, obviously, this cannot be guaranteed).

Performance of the VanEck Global Equal Weight UCITS ETF

Past performance is not a reliable indicator for future performance. Source: VanEck. Data for the period 14/04/2011 (ETF inception) – 14/09/2021.

However, with stock prices high, and some uncertainty creeping in, I believe it’s a good time to re-examine how much risk you’re taking in your investment portfolio. Indeed, when stocks rise I always rebalance my portfolio, selling some stocks and reinvesting in bonds or real estate and vice versa. In this way, I let my portfolio instead of my view on the market dictate my investment decisions.

Our ETFs offer a wide range of options. If you’re nervous about inflation, you can consider adding exposure to the VanEck Gold Miners UCITS ETF that has the eternal qualities of gold as an inflation hedge, or the VanEck Global Real Estate UCITS ETF. Real estate has also long been an inflation hedge. Do remember, as always, that investors should consider risks before investing, such as volatility risk, currency risk and sector concentration risk.

For anyone who wants an investment that rebalances automatically, dictated by the market instead of someone’s view on the market, our VanEck Multi-Asset UCITS ETFs – spread across equities, bonds and real estate companies –automatically rebalance their positions if equities rise. Since they were launched nearly 12 years ago, they have served investors well. Do note that also these ETFs contain risks, such as credit, interest rate and equity market risk.

Performance of the VanEck Multi-Asset Allocation UCITS ETFs

Past performance is not a reliable indicator for future performance. Source: VanEck. Data for the period 14/12/2009 (ETF inception) – 14/09/2021.

Indeed, the flexibility of investing in ETFs – and ease of trading between them – could give you an edge on the smart money. By being informed about the products you invest in, you can accept what you don’t know and finesse your risks at the margin, successfully dancing with both the bulls and the bears.