In an environment of elevated volatility and uncertainty, Frame pointed to portfolio management with a downside risk focus. Post modern portfolio theory or downside risk focus recognizes all uncertainty does not lead to losses and losses do not equal gains over time.
Additionally, as markets experience heightened asset correlation or more lockstep moves, investors are better off with an asset allocation strategy over active stock selection, Frame added. Specifically, she cited a Mark Krtizman paper from 2002 that looked at stock selection versus asset allocation from the perspective of correlations, which concluded that when correlations within an asset class become twice as high as the correlation among asset classes, asset allocation becomes the dominate contributor to portfolio returns.
[related_stories]For instance, the Rx MAR Tactical Moderate Growth Fund (MGZIX) and Rx MAR Tactical Growth Fund (MGMIX) utilize broad ETF-based asset allocation strategies to mitigate downside risk. Charles McNally Chief Portfolio Strategist at RiskX Investments, explained that “MAR” refers to “Macroeconomic Assessment of Risk,” which is used to define a tolerance for downside risk and is key to macroeconomic environment analysis utilized in portfolio construction.
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The four MAR Portfolios range from tactical conservative to tactical aggressive plays. However, Frame currently only offers the MAR Tactical Moderate and Tactical Growth strategies in mutual funds.
The moderate growth portfolio includes about a 40% tilt toward fixed-income, 48% in equities, 10% gold and 2% cash. The growth portfolio holds 40% fixed income, 53% equities, 5% gold and 2% cash. The moderate growth portfolio includes a larger position in gold and U.S. large-caps than the growth portfolio.
Financial advisors who are interested in learning more about ETF investment strategies can watch the webcast here on demand.