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Investing in ETFs to weather volatility storm

Invesco sees increasing popularity of fixed income and US equities ETFs.

As investors consolidate their portfolios due to rising rates and growing political tensions in Europe, Invesco has seen them shift their focus from riskier assets such as emerging markets equities towards fixed income and US equities.

Instead of seeking high dividend portfolios, it is now more essential for investors to invest in asset classes and geographies with lower volatility, said Tom Digby, head of ETF capital markets for Asia Pacific at Invesco at a group webinar that FSA attended.

“For many years, people have searched for a higher income strategy, but with the rising volatility that we’ve had, a lot of people have fallen into a dividend trap.”

“Although the portfolio is paying high dividends, it is because the price has gone down so much.”

He noted that investing in ETFs usually brings benefits in times of volatility due to their liquidity as people want to shift their portfolios in this environment.

“An ETF is designed as a diversified basket of securities so you’re not just buying a single investment. At a time when everyone is aware of volatility, you want to have liquidity,” said Digby.

“An ETF allows investors to interact with the markets instantaneously regardless of the actual investment objectives.”

Apart from fixed income and developed market equities such as in the US, Invesco also sees significant inflows into commodity strategies, due to a rise in aluminium and energy prices.

“The best way to get exposure to precious metals is through an ETF because it is hard to buy the exact commodity itself,” said Digby.

As the market anticipates the easing of lockdowns in China and the end of its zero-Covid policy, Digby also thinks investors can re-enter the Chinese market through ETFs as they are relatively liquid.

Part of the Mark Allen Group.