Using ETFs to Invest in the "New Normal"‏

As a new year approaches, the question on everyone's mind is: Where do we go from here?

We begin with a look at where we've been--how 20 years of easy credit and deregulation created a "shop-till-you-drop" environment that inflated debt to unthinkable levels before crashing down all around us.

Now we've entered what some have dubbed the "New Normal," characterized by deleveraging in the private sector, releveraging of the public sector, reregulation, and deglobalization. This is likely to translate into an extended period of lower expected corporate returns, higher inflation, government intervention, and protectionism. Ultimately, this ought to lead to slower growth in the developed world, while emerging markets grow at a faster pace, albeit slower than in the last decade.

So how do we gain an advantage in this New Normal?
One strategy is to buy income-generating assets to overcome lower expected corporate returns—perhaps bonds or dividend-paying stocks. You might also seek out returns in emerging-markets countries such as Brazil, India, and China. But these can be new areas for many investors.
Interested in new sectors, markets, and asset classes? Let me be your guide. Start a risk-free trial of Morningstar ETFInvestor, click here.

This is where exchange-traded funds (ETFs)--and Morningstar ETFInvestor--come in.

Thanks to their inherent tax advantages, cost efficiencies, and built-in diversification, ETFs can make it easier to get involved in new sectors, themes, and asset classes. The ETF universe is flush with funds that focus on a single market sector, industry, or geographic region. So, for example, if you favor indexing and want to own a specific market--such as biotech--or an individual country, you'll find ETFs targeted to meet your objectives. You can invest in a corner of the market without having to load up on one or two individual stocks.

As easily as ETFs can fit into any portfolio, not everyone is comfortable with these relatively new vehicles. That's why, as editor of Morningstar ETFInvestor, I'm happy to be your guide. I'll walk you through the advantages, disadvantages, and mechanics of including ETFs in your portfolio. What's more, I'm always looking to uncover opportunities that are benefiting from positive secular and cyclical trends, as well as trading at attractive values. My team and I dig into fund analysis and data, and drill down to the individual-stock level to try to identify the most promising ETFs.

Make sense of the world of ETFs with Morningstar ETFInvestor.
The Morningstar ETF 350 Watchlist. Coverage of more than 96% of ETF and ETN assets under management and a full range of funds from domestic equities to commodities to fixed income. For each fund, you'll get the critical performance, risk, portfolio, and expense data you need to make wise decisions.

In-Depth Analysis. We've expanded our coverage of ETF firms, fund flows, and broader economic data and charts to help give you a stronger macro view. Our monthly Fund Spotlight gives you a level of exacting, independent analysis you won't find anywhere else, plus insights into the best and worst performers.

Analyst Favorites. Lots of specific ideas for long-term portfolio builders.

Model Portfolios. The Hands-On portfolio has been investing for the New Normal before it even had a name. Our first move back into the market was the purchase of a dividend-themed ETF. We followed that up with a purchase of an emerging markets ETF that has us positioned to capitalize on the continued growth of these areas. The Hands-Free portfolio is a great example of some of the best investing advice out there--bet on the horse, not the jockey. That means betting on the market, not on money managers who tell you that they can beat the market. This tradition has borne fruit for our Hands-Free portfolio and many investors over the past few decades.

Proprietary Data. Comprehensive data points help you to research and choose ETFs on your own.

Between-Issue Resources. The ETFInvestor Web site keeps you apprised of breaking news and ideas with timely, flowing commentary between issues. Plus, you can track our model portfolios' performance in real time, get data on more than 850 ETFs, and download past issues.

Looking for ways to become acclimated to the New Normal?
Visit etf.morningstar.com to read some of our recent commentary and learn more about our monthly publication