Making Money Alert
ETF Talk: A Conservative Fund Offers Protection from Big Losses
09/14/2011
With the market’s recent volatility, you may have wondered if there is any place to invest your money in hopes of generating a respectable return that will not leave you vulnerable to a big loss. I completely understand how you feel. At such times, it can pay off to invest conservatively, and I have just such a fund to highlight for you.
The iShares S&P Conservative Allocation ETF (AOK) is an exchange-traded fund (ETF) that tracks the S&P Target Risk Conservative Index. AOK primarily consists of U.S. fixed-income assets, 80.99%, but equities encompass 18.87%, while cash accounts for the remaining 0.14% of its portfolio. In this current market environment, deploying a diversified portfolio that can withstand the large intraday market moves is becoming increasingly difficult, but AOK is designed to fill this role.
The fund is intended to replicate a complete asset-allocation plan. It does this by seeking investment results that correspond generally to the price and yield performance of the S&P Target Risk Conservative Index. The fund’s diversification and weighting heavily in favor of U.S. government bonds limit risk in times of market turmoil, but potentially could produce superior returns than cash alone.
If you watch the market as closely as I do, you undoubtedly have seen occasions during the past few months when stocks rose or fell 3%-4% in a single day. These moves can make paying close attention to your portfolio quite frustrating and worrying. If you do not have a stomach that handles volatility well, AOK could be the tonic you need.
AOK’s top three holdings are iShares Barclays Short Treasury Bond (SHV), 31.33%; iShares Barclays Aggregate Bond Fund (AGG), 26.31%; and iShares Barclays TIP Bond Fund (TIP), 18.64%. AOK’s one-year performance is 5.77%, as of Sept 12. Its current market capitalization is $64.98 million and its 52-week range is $30.01-$27.97. As of Sept. 13’s close, AOK was trading at $28.91.
Since risk-averse trading started at the end of the summer, investors had made the bond market an attractive place to put money. AOK is a great fund for you to consider owning if you want to be heavily invested in bonds, but still have a bit of exposure to the equity market.
As always, if you want my advice about buying and selling specific ETFs, including appropriate stop losses, consider subscribing to my ETF Trader service. I am pleased to answer your questions, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.