Isbitts says markets are becoming one macro-driven beta trade
Barchart columnist Rob Isbitts argues automated trading, options hedging and passive flows are reducing the value of traditional stock-picking.
Financial markets are increasingly behaving like a single macro-driven trade, according to Barchart columnist and former investment adviser Rob Isbitts.
Isbitts argues that automated quantitative trading, zero-day options hedging and passive index flows are causing stocks, bonds, commodities and cryptocurrencies to respond more alike to broad risk-on and risk-off conditions. He presents the thesis as commentary rather than a forecast, and does not predict when a bear market might begin or how severe it could be.
In an analysis published by Barchart and republished by Yahoo Finance, Isbitts says investors should focus less on selecting individual companies and more on deciding how much volatility and beta exposure they want. He argues that portfolios may contain excessive redundancy when multiple assets are responding to the same market forces.
His “Bubble ETF Focus List” places broad, large-cap index funds such as DIA, SPY and RSP at the lower-volatility end of the spectrum. QQQ and MAGS sit further along the risk curve, while thematic funds including CLOU, IGV, SOXX and MEME are described as having larger potential movements.
Isbitts says investors could simplify their approach by learning to trade a small number of exchange-traded funds while managing both upside and downside risk. He also notes that parts of the comparison were based on a single trading day and his own analysis, without an independently supplied methodology.
The article is informational rather than investment advice. Isbitts disclosed that he held no positions in the securities mentioned.
