KFAC Commentary – Background & Rationale for Recent ETF Trades

Nicholas Coppola, CFA

February 13, 2020

 

Earlier this week, we made several transactions on behalf of our clients.   While transactions varied by account, they consisted primarily of a portfolio rebalancing and replacing the Invesco S&P International Developed Low Volatility ETF (IDLV) with the Schwab International Equity ETF (SCHF).  

In regards to the rebalance, we brought position weights back into relevant ranges to maintain desired risk/return characteristics, and we made several adjustments to exposures in certain low cost cap-weighted funds across sizes and styles.  Size and style mix adjustments were driven by changes in the make-up of the S&P Total Market, modest ‘tilts’ driven by the results of our KFAC proprietary scoring model, and our go-forward outlook. 

Turning to the replacement of the Invesco S&P International Developed Low Volatility ETF with the Schwab International Equity ETF, we view this fund as an effective way to gain broad exposure to developed markets outside of the United States.  While we view this as a core holding rather than a short-term trade, we also think this fund is better positioned to take advantage of potential improved growth in international developed economies.  Numerous risks to key regions in Europe and Japan remain, but catalysts could include a re-acceleration in industrial activity benefitting more export driven economies in the Eurozone and greater trade clarity in the United Kingdom after the Brexit transition period.  Valuations are also lower in international developed markets with weighted average holdings in SCHF trading at ~18.3x trailing twelve months earnings vs. the S&P 500 trading at ~22.2x trailing twelve months earnings.   And importantly, at a higher-level, we view this position as serving an important role in well diversified client portfolios.

As always, please feel free to reach out with any questions and we thank you for your continued trust.   

Sincerely,

Nicholas Coppola, CFA

Senior Portfolio Manager

 

Nicholas Coppola, is a Senior Portfolio Manager at Kays Financial Advisory Corporation. He can be reached at (770) 951-9001 or at ncoppola@scottkays.com.

 

This report and Mr. Coppola’s comments are provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance. Any security mentioned in this report may not be suitable for all investors. No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment. Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances. Past performance of any investment mentioned is not a guarantee of future performance. Statements regarding the investment concerns and merits of any investment and fair market value computations are strictly the opinion of Kays Financial Advisory Corporation. Employees of KFAC and KFAC clients may have positions and effect transactions in the securities of the issuers mentioned here in.