There is no single recipe to building an ETF portfolio. But understanding how a portfolio is built is key to picking the right one. And choices abound, with hundreds of ETF strategist portfolios today commanding nearly $100 billion in combined assets.
For that reason, we are setting out to better understand how ETF strategists go about creating these portfolios in a series of interviews that look under the hood of some of the ETF portfolios available to retail, institutional and advisor clients alike.
Today’s portfolio close-up is the CMG Opportunistic All Asset Strategy
Provider: CMG Capital Management Group, a King of Prussia, Pennsylvania-based ETF strategist
Who we talked to: Stephen Blumenthal, chairman and chief executive officer of the firm
Portfolio AUM: $600 million
Primary Goal: To generate growth with downside risk protection. It’s a portfolio that sets out to give up some of the upside for peace of mind on the downside.
Methodology: The active process of putting this portfolio together begins with a universe of 100 or so ETFs, each representing an asset class or pocket of the market. These ETFs are split up and placed into 11 different models, each containing eight to 10 funds. These models look for which ETFs are showing positive price momentum and strength relative to the other ones.
It’s a momentum-based approach that looks to invest at any point only in the ETFs that show positive price momentum and relative strength. That means the portfolio can at any point invest in a single asset class—say, fixed income—if that’s where the leadership is across all models.
The models vary in their asset mix, as well as in their defined measurement period (used to establish the price momentum), and the defined holding period (used to determine how long those assets will be held in the portfolio). The variety ultimately diversifies how momentum is measured as well as how long a security is held.
Because of that variety in time frames, the portfolio is often changing and rebalancing—there’s no single rebalance date. Still, most ETFs are held anywhere from 30 to 90 days, but can be held longer if momentum holds.
Target Client: This strategy can be used by retail, institutional investors and financial advisors alike, but its design as a moderate-growth, low-volatility portfolio resonates with “moderate” investors and advisors, who use it as a core position within their portfolios.
Asset Allocation Breakdown (see chart below):
All ETFs? Yes
ETF included in this portfolio: Currently 10. Maximum is 11.
Short-term Bonds (Allocation: 8.3%):
Aggregate Bond (Allocation: 9.6%):
REITs (Allocation: 9.4%):
International (Allocation: 26.9%):
Utilities (Allocation: 9.2%):
Medical Devices (Allocation: 8.4%):
Gold (Allocation: 10.3%):
Municipal Bonds (Allocation: 8.6):
Emerging Market High Yield (Allocation: 9.2%):
Fees: The cost of ownership of this fund ranges from 0.62% to 1.00% depending on the platform it has accessed. CMG incurs varying degrees of risks and responsibilities depending on the platform, which are incorporated into the overall fees.
Performance: +1.01% in Q1 2016 and -5.63% in 2015
Contact Cinthia Murphy at [email protected].