Portfolio manager tilts toward growth and U.S. equities in anticipation of an economic recovery.
Byron Green is an adviser to advisers.
The president of Fort Worth, Texas-based Green Investment Management doesn't work with retail investors. Instead, his 24-year-old firm designs and oversees portfolios for financial planners and their clients around the country. "Our expertise is managing money, not estate planning or insurance," said Green.
As such, the firm's portfolio managers have developed 13 different asset allocation models. Most of those portfolios are focused on exchange-traded funds. But his staff also will use institutional-level mutual funds in some cases.
"ETFs are very tax-efficient and an effective way to invest from a cost standpoint," said Green, who estimates his firm has some $120 million in assets under management.
He also says his managers appreciate the flexibility ETFs provide in applying the company's analysis of markets across different sectors and asset classes. Green prefers to take what he describes as a big-picture approach to tracking markets rather than fundamentally analyzing individual stocks.
"ETFs are at the core of our methodology and approach to managing portfolios," he said.
Taking A Global View
Five of Green's models are built to provide exposure to markets worldwide. "Each has a segment of fixed income, international equities, U.S. equities and other asset classes. They're all managed with the same strategy, but allocations differ according to individual risk profiles and investment horizons," said Green.
Typically, the firm starts with core ETF positions. "We break down the Russell indexes and use ETFs in four asset classes—large growth, large value, small growth and small value," said Green. "We'll always have money in each of those. But if we have more confidence in one area of the market, we might overweight that style a bit."
Over the longer term, he tends to tilt more toward value stocks. Lately, though, he has been investing more into the iShares Russell 2000 Growth Index (NYSEArca: IWO) and the iShares Russell 1000 Growth Index (NYSEArca: IWF). "We're actually equal-weighting value and growth in our portfolios now," said Green. "Since we normally slant towards value, that represents an overweight in domestic growth for our clients."
Optimistic About A Recovery
The growth shift in his portfolios started about six months ago. Green says it stems from his firm's belief that markets are positioned to recover in the near future. "The fundamental picture of our economy seems to be pointing to some sort of positive growth late this year or early next year. Either way, we're coming to a juncture where signs are encouraging," he said.
The current stock market rally is revealing another positive sign, adds Green. "Some of the less-defensive sectors are participating strongly in this rebound," he said. "Over the last 30 days, Basic Materials are up more than 20%. And a lot of the retail stocks are showing very strong performance, with roughly a 40% rally over the past 30 days. Both signs indicate people are becoming more optimistic."
By contrast, Green notes that utilities in the S&P 500 are down slightly in the past month and Healthcare is down more than 7%. "Those are sectors that investors flocked to when markets were under severe pressure," he said. "Now, they seem to be moving into more-cyclical areas."