Watch Jason Gunkel's interview with Murray Coleman of Financial Advisor IQ.
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ, Oct. 3, 2016
MURRAY COLEMAN, REPORTER, FINANCIAL ADVISOR IQ: Hi. This is Murray Coleman with FA IQ. I’m here today with Jason Gunkel, a senior financial advisor in West Des Moines, Iowa. And Jason, your firm has started to — well, it’s been an early pioneer in using minimum volatility funds, such as ETFs, correct?
JASON GUNKEL, SENIOR ADVISOR, SYVERSON STREGE & CO: Yeah. That’s right.
MURRAY COLEMAN: These are pretty heady times still. There’s a lot more volatility in the market and flows are really picking up. Why do you folks like to use them?
JASON GUNKEL: We started using these funds in about 2005. And we were early adopters. And now, about 10 years later, they’ve really shown to be successful. And so they can capture a lot of the upside of the market. Typically, they’ll capture about 80% of the upside of the market, and less of the downside. So only maybe about 50%-60% of the downside.
MURRAY COLEMAN: Do you use them as core positions? Or do you use them as you satellite positions?
JASON GUNKEL: They are core positions. They’re very well diversified. Among positions, they’ve got about 100-200 holdings. And also, they’re diversified among sectors and countries. So they are core positions, that’s how they’re meant to be used.
MURRAY COLEMAN: And like you were saying, they don’t capture all the upside. Are there certain parts of the market where you’re finding these are more applicable to and provide less exposure to your client in terms of upside risk?
JASON GUNKEL: And it can very because they’re going to move into different sectors depending on how the market is. But right now, there are more heavy in the health care and the consumer staple goods and utility companies that are more stable, less resistant to a downturn in the economy. So they might stay away from some of the hot flashy names, like an Apple, Google, or a Netflix, something like that, and stay more towards blue chip companies like a Procter and Gamble or a Johnson and Johnson.
MURRAY COLEMAN: So have you pretty much replaced the generic plain-Jane type of funds that cover broad swaths of the market?
JASON GUNKEL: We typically use these funds in the more conservative models. And so for those investors who are a little bit more concerned about volatility, or maybe they’re in retirement and taking withdrawals from their portfolio, we tend to use these low volatility investments. For those younger clients who have more aggressive portfolios, we still use other strategies that typically have volatility similar to the market.
MURRAY COLEMAN: And I guess high beta.
JASON GUNKEL: That’s right.
MURRAY COLEMAN: With investors who like and need income, such as retirees, do you find that minimum volatility ETFs fit well with pairing them with high dividend paying ETFs? Or is that kind of overlap?
JASON GUNKEL: There is a lot of overlap there. And so we typically just use these as a core holding. And the income that these pay is similar to the dividend income of the overall market, about 2%. And so we don’t need to pair them with something else. We’ll tend to use their fixed income portfolio to give them the income they need.
MURRAY COLEMAN: OK. And, of course, international stocks generally pay higher distribution levels than your basic U.S. domestic plain-Jane stock, generic stock. Do you still find a need for volatility ETFs for international exposure?
JASON GUNKEL: We do. And particularly in the emerging markets. The emerging markets are such a volatile area, it can spook a lot of investors. And so we like to get our exposure with low volatility that just won’t have the wild swings that some of the market indexes do.
MURRAY COLEMAN: Jason, thank you for your time today.
JASON GUNKEL: All right. Thanks for having me.
Jason Gunkel, CFP®, CFA, CAP®