Over in the US, there’s a new wave of ETF strategists who assemble low-cost ETF portfolios for more adventurous investors. The idea is not to ape the long-term strategic models used by the likes of Vanguard – simple, buy and hold investing with a few occasional tweaks. Rather, this growing band of ETF Strategists take a more tactical approach – sticking within certain broad target levels but then switching allocations based on their forecasting models. Some are more technical driven (Dorsey Wright for instance) while others are more value or fundamentals-driven.
These ETF Strategists are yet to make a big impact here in Europe, but a first wave has appeared – led by Charles Ekins of Ekins Guinness. The ex CIO at Valu Trac runs his own fund management shop now which in effect operates as a passive discretionary fund manager – his fund features a portfolio of carefully chosen ETFs.
I think the idea behind these passive funds makes absolute sense – these are much more efficient, low cost DFM solutions incorporating both equities and bonds (as well as cash). Crucially Charles also has developed his own proprietary model for forecasting markets which seems to have had a good track record of avoiding bear markets. according to Charles his model reduced allocations to equities in “1987, 1990, 1994, 2000-2003, 2008, 2012 and 2015-2016”. Think of it as a much cheaper form of absolute returns investing than GARS!
Crucially his model has started to nudge back into cash in April 2018 and is doing the same now – he suggests the “reason is that equity markets are now at an important point of inflexion, despite equity valuation being reasonable”.
Last week he brought his latest strategy overview – and it makes fascinating reading. He draws attention to the chart below which shows the 200 day World equity price moving average (red line) which is now falling. He suggests this “isn’t a reason in itself to move out of equities, but it is not good news.” I’ve also highlighted his key asset allocation calls below the chart.
Global Sector Strategy
- Main Overweights are Healthcare, Oil & Gas and Technology
- Main Underweights are Industrials, Consumer Goods and Financials
- Main increase recently has been to Healthcare
- Main reduction recently has been out of overbought Consumer Services (Discretionary)
Regional Equity Strategy
- Main Overweights are USA and UK
- Main Underweights are Asia ex Japan and Europe ex UK
- Currently zero in Emerging Markets
- Main increase recently has been to USA
- Main reduction recently has been out of Europe ex UK and Japan
- Generally short currencies against US Dollar (i.e. long US Dollar)
- Notable exception is long Mexican Peso versus US Dollar
- Generally long currencies versus Sterling (i.e. short Sterling)
- Notable exceptions are short Brazilian Real, Australian Dollar and South African Rand versus Sterling
- Long Norwegian Krone, Yen, US Dollar and Swiss Franc against Euro