Risks from Overweighting US Stocks in ETFs
Metzler warns of the risks arising from the high weighting of US stocks in ETFs. This warning is particularly relevant for private investors looking to diversify their portfolios and possibly opt for passive investment forms such as ETFs. Here are some points that underline the importance of this warning:
Overvaluation
The high demand for US stocks in ETFs can lead to an overvaluation of these securities. This means that investors may be paying inflated prices, which increases the risk of losses when the markets correct.
Lack of Diversification
If a large part of the portfolio is invested in US stocks, this can impair diversification. A balanced distribution across different markets and asset classes is crucial to minimize risk.
Market Volatility
US stock markets can be volatile, especially during political or economic changes. A high weighting of US stocks in ETFs may increase the portfolio’s susceptibility to such fluctuations.
Strategies for Risk Mitigation
Active Management
Active management can be an alternative to passive ETFs, especially during phases when markets are overvalued. Active managers can strategically invest in less weighted stocks, such as mid-caps, to achieve better returns.
Diversification
Broad diversification across different asset classes, regions, and sectors can help minimize risk. This also includes investments in European stocks, which may be more attractive compared to US stocks.
Geopolitical Risks
Investors should also consider geopolitical risks, such as dependence on critical raw materials that heavily rely on Chinese exports. A strategy for hedging against such risks can also contribute to risk mitigation.
Overall, it is essential for investors to carefully monitor and adjust their portfolios as needed to minimize risks and take advantage of opportunities.