AGF's Bill DeRoche On Trends and Anti-Beta Fund Strategies | ETF Trends

With thoughts on what 2020 could mean for alternatives, there’s a question of how AGFiQ funds are being used in financial advisor and ETF strategist models.

AGF’s Chief Investment Officer and Head of AGFiQ’s Alternative Strategies, Bill DeRoche, has his own thoughts that call to mind specific ETFs.

While the AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL) has been around, DeRoche spoke with ETF Trends about the AGFiQ U.S. Market Neutral Anti-Beta CAD-Hedged ETF (QBTL), the recently launched Canadian equivalent, and why it matters.

As QBTL is an insurance product, it’s important not to look at it just by itself. It needs to be seen for what it does to the portfolio. AGF typically provides around a 75% exposure to core equity, using BTAL and SPDR S&P 500 Trust ETF (SPY), rebalancing quarterly, for a portfolio that has performed slightly better than a 60-40 bond portfolio.

Looking forward, it seems as though fixed income will be significantly lower in terms of returns, while this portfolio relying on long low volatility, short high volatility doesn’t come across with possible impairment. Given where the risk-return was, it could continue to deliver that type of performance.

“The suggestion is either substitute some of the Bloomberg Barclay’s agg exposure with this BTAL/QBTL or maybe all of it,” DeRoche states.

“We have different degrees at the end of the day in terms of how much exposure you’re willing to move out of the Bloomberg Barclay’s Agg, and into QBTL. But, the suggestion is that we would reduce our fixed income exposure at the end of the day.”

What Trends To Keep In Mind

Shifting gears, looking at how the markets are running high, DeRoche was asked to speak to any interesting trends that may inform these thoughts on the use of QBTL.

He notes how there are a number of models, with one serving as a risk probability model. It relies on forecasting if there’s any increased probability in the market going up or down, relative to its long-term history. Right now, while not overly significant, the model would suggest risks are tilted more to the downside.

“Again, we keep suggesting to our clients that right now is a good time to think about good defense,” states DeRoche. “That’s the message. There are 18 different components that we look at. Obviously valuation is a big element to that; earnings, growth rates, and things along those lines.”

With everything suggests things have somewhat peaked relative to all those metrics, the ability to continue to get to higher levels in the market suggests a need for earnings growth, or multiple expansion, or GDP growth. While skeptical about a possible recession in the forecast, there is a line of thinking that the GDP is not going to be growing at the same level suggesting the markets can get significantly higher.

All of this speaks to a probability of downside, as opposed to a significant upside. It’s not about getting out of the equity market, as there are positives associated with it. Still, one has to be realistic about equities going into 2020.

That said, given the upcoming 2020 U.S. Presidential election, there will be significant attempts to keep pushing the economy forward for investors. It’s just a matter of staying cautious.

For more market trends, visit ETF Trends.