Asset Allocation Strategies for the Year Ahead | ETF Trends

Financial advisors who are looking for ideas can consider exchange traded fund portfolios that better-help position their clients for the coming year.

In the recent webcast, 2021 Asset Allocation Insights: Far From Obvious, Matthew Bartolini, Head of SPDR Americas Research, State Street Global Advisors, outlined our current market environment. US equities had their biggest monthly gains since April as positive vaccine news and diminished election uncertainty spurred a risk-on rally. Vaccine optimism has boosted investor sentiment as investors continue to unwind cash positions accumulated in April, but there is still a lot of money on the sidelines with around $600 billion more in money market funds now than during the pre-pandemic period.

Looking at global markets, Bartolini pointed out that emerging markets economic sentiment continues to improve as stronger growth is projected for China and Emerging Asia when compared to the rest of the world in 2021. Despite the strong rally of small-caps, mid-caps, and value stocks, their valuations remain attractive in absolute and relative terms. Additionally, earnings optimism has supported the equity market rebound globally as analysts upgrade earnings on the optimism of faster economic recovery.

In the U.S., factor performance has reversed course over the past three months, as cyclical factors, such as size and value, led the market rally. Size and value rallied hard off the vaccine news, while quality held up better than momentum given the potential for an uneven recovery. Meanwhile, investment flows followed performance, as three of the top four performing sectors attracted the most monthly flows last month, including financials, industrials, and materials. Furthermore, clean energy ETFs attracted the most flows last month, given the focus of the Biden-Harris administration, while smart mobility ETFs led performance, on average.

The fixed-income market remains supported by the lower-for-longer interest rate environment, but investors will have to contend with rising inflation risks on real yields. As higher inflation expectations lift long-term yields and the Fed anchors short-term yields to near zero, yield spreads have expanded over the past three months, Bartolini said. Meanwhile, credit spreads tightened to around pre-pandemic levels and well below their long-term averages, as a result of the turn in sentiment. Bartolini argued that investors may want to target bond exposures with attractive yields per unit of volatility for income in this low-yield environment.

The GLOBALT Investment Process

As a way to navigate the current market environment, Gary Fullam, Chief Investment Officer, GLOBALT Investments, highlighted the GLOBALT investment process, which starts with top-down market analysis and incorporates quantitative, fundamental, and technical analysis to construct risk-controlled, diversified portfolios. The GLOBALT process incorporates four types of components when constructing their model outputs, including the Economic Factor, which includes economic data, sentiment, monetary policy, market indicators, and valuation; the Sortino Ration, which isolates return per unit of negative volatility or downside deviation; Momentum, a time-weighted measure of price momentum relative to other benchmark assets; and Smoothing, which is designed to smooth overall rank and reduce ties between correlated assets.

To help financial advisors better-serve clients, Fullam pointed to the GLOBALT InnovatETF Strategies, which utilize a proprietary asset allocation approach, developed by GLOBALT with the help of Ned Davis Research. Their goal is to focus on and develop the appropriate asset allocation strategies and to rebalance as market and economic conditions warrant the use of a strategic and tactical approach. Currently, the portfolios are underweight total equities, overweight U.S. equities with a focus on mid-cap growth and small-cap value, underweight international equities, underweight bonds, underweight real estate, exposure to gold metals, and overweight cash.

William Roach, Jr., President, GLOBALT Investments, explained that GLOBALT Investments will be celebrating 30 years in business in January 2021 and held $3.5 billion in total assets under management as of September 30, 2020. The InnovatETF Strategies is nearing $2 billion with an 18-year track record.

GLOBALT Investments offers an array of ETF model portfolio strategies. The GLOBALT InnovatETF Strategies include Dynamic Asset Allocation Strategies; Diversified Models that cover Defensive, Conservative, Balanced, Growth, and High Growth; and Income Growth. The GLOBALT US Equity strategies include Large Cap Growth; Large Cap Core and Equity Income. Lastly, the GLOBALT Fixed Income strategies cover intermediate and short-term debt.

Roach explained GLOBALT’s Asset Allocation’s primary goal is to minimize exposure to downside, provide active rather than strategic allocation, offer disciplined and adaptive approach to asset class diversification, focus on long term investment objectives, and allow for risk/return tradeoff.

“We strive to deliver consistently competitive long-term investment returns based on the investors desired level of risk,” Roach said.

Additionally, GLOBALT offers client services in developing relationships and as well as including the client in the personalized review meetings and the process as a whole.

Financial advisors who are interested in learning more about asset allocation strategies for the year ahead can watch the webcast here on demand.