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: The Toroso Neutral Allocation Strategy
Provider: Toroso Investments, New York City
Who We Talked To: Mike Venuto, Chief Investment Officer and Co-founder
Portfolio AUM: Firm’s assets under management is $78 million as of end of April; the portfolio AUM is commingled.
Primary Goal: The Toroso Neutral Allocation Strategy strives to outpace inflation by providing a consistent absolute return with limited volatility. The main goal of the strategy is to preserve wealth as a core allocation during the accumulation and distribution phases of an investor’s life cycle.
What sets this strategy apart is its approach. Toroso’s “investing glide path” is different from traditional modern portfolio theory risk-based allocations. The firm uses goals-based portfolios, targeting each individual client’s time horizon and risk tolerance with various combinations of asset allocations. The three primary investor goals include growth, income and wealth preservation.
Methodology: The strategy uses a combination of alternative asset allocation and in-depth fundamental ETF selection. The asset allocation is based on Harry Browne’s permanent portfolio allocation, “which has historically provided returns of about 8% with one-third of the volatility of U.S. equities.”
The allocation is predicated on equal weighting of four asset classes—25% per asset class: equities; commodities and other alternatives; cash equivalents; and bonds that “thrive in one of four possible economic environments: prosperity, inflation, recession and deflation.”
The second component of the portfolio construction is in-depth fundamental ETF selection. Toroso uses only ETFs, and tries to find themes that provide excess returns relative to the core benchmarks that represent each asset category. Toroso evaluates passive ETF ownership, smart-beta cost and active share, valuations, index construction and growth metrics.
Target Client: The strategy is available to institutional investors and as a managed account on a variety of platforms, including Schwab, TD Ameritrade and certain Pershing platforms. The strategy is designed for individuals or financial advisors looking to preserve wealth and compound returns. Generally, this is not a total portfolio solution, but rather a core component to complement additional growth or income strategies.
Asset Allocation Breakdown:
25% Cash/Cash equivalents
All ETFs? Yes
Fees: ETF average total expense ratio is 0.23%
The Toroso management fee is determined based on the platform or custodian the client selects or that their advisor uses. The maximum fee for a direct client is 1.00%. Generally, the fee for a dual contract through a wealth advisor is 0.35%, and the fee for a retirement-advisor-supported 401(k) plan is 0.40%.
Performance (YTD or 1 Year): Year-to-date net-of-fee performance through May 31 is 3.87%
Contact Cinthia Murphy at [email protected].