The final month of the year is upon us and many ETF investors are likely considering making changes to their holdings as a result of annual rebalancing, required minimum distributions, or a change in their investment profile. These rituals can be an important step in ensuring you stay within your asset allocation targets and give you the ability to objectively analyze your underlying positions to see if any strategic changes should be made.
However, there are also several important factors to take into consideration before you make any drastic changes to your investment portfolio. Namely you should analyze the impact of taxes, transaction costs, and redistribution of capital to various asset classes in accordance with your outlook for 2015. Each investor has unique factors that contribute to their personal game plan for success.
In a year like 2014, where stocks and bonds diverged significantly from commodities, a diversified investment portfolio may need more adjustments than normal. Even within the context of an equity-only portfolio, we have seen noteworthy divergences across individual sectors and stocks. Consider that the Utility Select Sector SPDR (XLU) and Health Care Select Sector SPDR (XLV) are sitting on gains of over 25% this year, while the Energy Select Sector SPDR (XLE) has fallen more than 8%.
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