Why Model ETF Portfolios Need Active Mgmt

July 21, 2017

John Davi has a long track record of providing macro insights for major institutional money managers. He spent 18 years working for Morgan Stanley and Merrill Lynch. Now, he’s bringing his expertise to the ETF strategist space, opening this month Astoria Portfolio Advisors, looking to bring institutional-caliber investing strategies to retail and advisor clients.

ETF.com: You've worked at Morgan Stanley and Merrill Lynch in their ETF efforts before starting your own firm. Why begin an advisory?

John Davi: It was always my aspiration to have my own company, and 10 years ago, starting your own investment advisory firm would have been very difficult, because you didn't have the tools that you have available today. Now you can build a global macro portfolio of ETFs fairly quickly and at a low cost.

My goal is to leverage all the institutional experience I've had working at Morgan Stanley and Merrill Lynch, and give retail investors and financial advisors access to institutional-caliber portfolio strategies.

ETF.com: ETF model portfolios today are practically commoditized. What's your investment philosophy? What's unique about the way you're doing things?

Davi: We do macroeconomic and quantitative research to evaluate whether asset classes are not only cheap but if the market will realize its potential. Take, for instance, Japan. It was a market that, for 20 years, stayed cheap. The catalyst that eventually turned Japan around was when Shinzo Abe came into office. I believe Japan still remains attractive in the context of this global economic recovery we’re seeing. That’s step one.

The second step is we focus on game theory. We look at a variety of positioning and sentiment indicators to determine whether there's a mispricing.

For example, there was all this concern about secular stagnation in the post-credit crisis period. People piled into curve, roll-down, and yield trades given that growth was perceived to be low. But what we had after the credit crisis was one of the greatest bull markets ever. And people were largely absent from it. We look for these mispricings.

The third thing is risk management. We look at cross-asset risk indicators, we take inputs from the derivatives market, and we use these signals to de-risk the portfolio during times of distress.


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