A Dynamic ETF Strategist for Changing Market Conditions

For example, the Dynamic Sector Strategy aims to preserve capital in protracted down markets while still providing high level of participation in rising markets in an attempt to outperform over full market cycles. The portfolio largely consists of long U.S. equity exposure that targets the best sector and style ETFs.

The Dynamic Sector Strategy may hold State Street Global Advisors SPDR sector ETFs, along with various BlackRock iShares market cap-weighted growth and value ETFs, during risk-on market conditions. On the other hand, during risk-off conditions, the ETF model portfolio may shift to fixed-income assets, including broad Barclays Aggregate Bond Index exposure, Treasury inflation protected securities, Treasuries and cash alternatives.

“Tactical asset allocation (TAA) is a dynamic strategy that actively adjusts the asset weights in a portfolio based on the manager’s market views,” Julex Capital Management said in a note. “It is normally used as a complement to a strategic allocation in order to improve the risk/return profile of the total portfolio.”

The portfolios are able to shift positions from riskier to more conservative assets in changing market environments in an attempt to limit drawdowns while still maintaining upside potential, which may lead to outperformance over extended periods.

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