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 certainly abound, with hundreds of ETF strategist portfolios commanding nearly $100 billion in combined assets today.
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: Forstrong Special Opportunities Focus
Provider: Forstrong Global Asset Management, Toronto
Who We Talked To: Tyler Mordy, Chief Investment Officer & President
Portfolio AUM: $110 Million
Primary Goal: This portfolio is designed to provide investors with diversification that goes beyond equities and bonds. The Forstrong Special Opportunities Focus strategy uses a flexible global tactical asset allocation that seeks long-term growth and protection against downside risk. The portfolio aims to produce returns with a low correlation to traditional balanced portfolios.
Methodology: The Forstrong Special Opportunities Focus strategy is a unique asset allocation portfolio that’s designed to express Forstrong’s macro views across major asset classes, including global equities, global bonds, currencies and commodities, real estate and others. The strategy looks into everything from muted growth in the West, to significant market volatility, to recurring balance sheet issues and continued income and wealth convergence between the emerging world and the developed world. The strategy not only diversifies across asset classes, but also across global risk factors.
Another key differentiating feature of the investment strategy is the use of numerous approaches to tail-risk hedging, seeking to protect the portfolio against sudden market shocks.
Target Client: The portfolio can be viewed as a "diversifier" to traditional core balanced holdings, functioning as a "satellite" in a core/satellite portfolio construct for retail and institutional investors alike.
Asset Allocation Breakdown:
ETFs in the Portfolio:
Cash and Equivalents: 5.00%
U.S. Fixed Income: 10.00%
- iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-68)
- PowerShares Senior Loan Portfolio (BKLN | C)
Emerging Markets Fixed Income: 15.00%
- PowerShares Chinese Yuan Dim Sum Bond Portfolio (DSUM | C)
- iShares Emerging Markets Local Currency Bond (LEMB | C-91)
- iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB | B-58)
US Equities: 3.50%
*IOO’s underlying exposure was approximately 60% U.S. equities and 40% international equities at the time of writing.
**TAN’s underlying exposure was approximately 40% U.S. equities, 35% emerging market equities and 25% international equities at the time of writing.
International Equities: 24.75%
- iShares MSCI EAFE Small-Cap ETF (SCZ | B-93)
- iShares MSCI Sweden ETF (EWD | B-89)
- iShares MSCI Japan ETF (EWJ | B-93)
- SPDR Euro Stoxx 50 ETF (FEZ | A-77)
Emerging and Frontier Market Equities: 31.75%
- Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR | D-65)
- iShares MSCI Poland Capped ETF (EPOL | B-99)
- VanEck Vectors Vietnam ETF (VNM | C-31)
- iShares MSCI Frontier 100 ETF (FM | F-63)
- iShares MSCI India ETF (INDA | B-97)
- iShares China Large-Cap ETF (FXI | B-44)
Alternatives (Real Estate, Commodities, etc.): 10.00%
- WisdomTree Japan Hedged Real Estate Fund (DXJR | C-59)
- iShares Mortgage Real Estate Capped ETF (REM | B-97)
All ETFs? Yes
Fees: They depend on the distribution channel. An actively managed ETF of the portfolio is available on the TSX, the Horizons Managed Global Opportunities ETF, with a management fee of 0.85%.
Performance (YTD or 1 Yr):
YTD: -4.16%; 1 Year: -4.75%; Since Inception: 22.5% (inception date of Jan. 1, 2014). All performance figures are as of May 31, 2016 and are in Canadian dollars.
Contact Cinthia Murphy at [email protected].