Exchange-traded funds can help financial advisors build portfolios that withstand market stress, according to Mark Alberici of State Street Investment Management. His assessment highlights how ETFs may support diversification, cost control, and timely portfolio changes during uncertain periods.
The message comes as advisors face shifting interest rates, uneven economic growth, and sudden changes in asset prices. Those pressures have increased the focus on portfolio resilience, or the ability to absorb losses while staying aligned with long-term goals.
Resilience Requires More Than Diversification
ETFs are investment funds that trade on stock exchanges. They can track stocks, bonds, commodities, or specific investment strategies. Their broad market access allows advisors to spread client assets across several sources of return and risk.
“ETFs let advisors build resilient portfolios,” Alberici said.
Resilience does not mean avoiding every decline. Instead, it often means limiting dependence on one market segment and maintaining enough flexibility to respond when conditions change.
An advisor might use broad stock and bond ETFs as a portfolio’s core. More focused funds can then adjust exposure to industries, regions, credit quality, or maturity ranges. This structure may simplify changes without requiring trades in many individual securities.
Liquidity and Costs Matter
ETFs generally provide trading throughout the market day. That feature can help advisors rebalance portfolios or raise cash when clients’ needs change. Yet market access does not guarantee an easy trade at every moment.
Some funds hold securities that trade less often than major stocks. During periods of stress, ETF prices can move away from the estimated value of their holdings. Trading costs can also rise as the difference between buying and selling prices widens.
Fees are another part of the resilience discussion. Many index-tracking ETFs charge lower management fees than traditional active funds. Lower costs can reduce the drag on long-term returns, though investors must also consider brokerage expenses, taxes, and bid-ask spreads.
- Broad exposure may reduce concentration risk.
- Intraday trading can support faster portfolio adjustments.
- Fund fees and trading costs can affect results.
- Liquidity should be reviewed before periods of market strain.
ETFs Are Tools, Not Guarantees
Alberici’s view presents ETFs as practical building blocks, but fund selection remains important. Two ETFs with similar labels can follow different indexes, hold different securities, or use different weighting methods.
Advisors must also match each fund to a client’s time horizon, cash needs, tax position, and tolerance for losses. A diversified ETF can still fall sharply if the market it tracks declines. Specialized or leveraged products can carry greater risks than broad funds.
Active ETFs add another choice. Their managers can change holdings based on research or market conditions. That flexibility may help in some environments, but it can bring higher fees and manager risk. Passive funds offer clearer index exposure, although they generally follow markets lower during broad selloffs.
Portfolio Design Remains the Deciding Factor
The central issue is not whether ETFs are always better than mutual funds or individual securities. It is how advisors use them within a disciplined plan. Asset allocation, rebalancing rules, liquidity needs, and client behavior can matter as much as the investment vehicle.
Alberici’s statement reflects the growing role of ETFs in advisory portfolios. Their range and tradability can support resilient design, but they do not remove market risk. Advisors will need to examine holdings, costs, and trading conditions as they prepare clients for the next period of volatility.
