ETF Picks From A Tactical Manager

April 27, 2017

Sage Advisory is one of the best-known asset managers in the ETF space, commanding $12 billion in assets today. The Austin, Texas, firm, known for its tactical expertise, takes a more activelike approach to investing. Robert Williams, managing director, gives us a rundown of where the firm sees the most opportunities this year, and what they’ve gotten wrong. I was recently told that, in this environment, investors don't really want to hear about being tactical. Is there a negative perception about tactical investing, or are there times when tactical investing makes more sense than others?

Rob Williams: It's more about the environment, I’d say. Tactical for us means shorter time horizon, being more active, being able to take advantage of dislocations, volatility, things where big relative value opportunities emerge.

But we've just been treated to a really nice environment. We've had a pretty good bull market for years now, so it makes strategic look very good, like you don't need to put a lot of effort into this. Investors become complacent and say, “Why do I need tactical? I'll just put money in an index fund and leave it alone.”

But we've been in a nine-year cycle here, and volatility's been very low, so it might be a good time for investors to start pairing some strategic assets with some tactical approaches.

For example, we've been positioned overweight international and Europe for a while; it ran behind the U.S. in the beginning of the year. Now as some of the political clouds start to become a little clearer over there, there’s opportunity. We’re now outperforming by a good deal. Do you expect this outperformance in international stocks to continue this year?

Williams: One of our core views going into the year was that you should have higher levels of international exposure. You've had U.S. outperformance, and it's been going on for a long time. Our growth came a little bit quicker. Our Fed was a little more aggressive, so things came back a bit better here, but they discounted the other markets around the world. That's changing now.

If you look at the data, this is the first time in many years we've seen a synchronized recovery in China, Europe, the U.S. and Japan. For the first time, you see earnings recovery in emerging markets and Europe, and some of the data looks better overseas.

What's been holding it back is the political risk. If some of that clears up, international markets are cheap. It's the biggest opportunity we saw going into the year—to overweight international, specifically Europe.


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