GGM Aims to Beat the Market with New Sector Rotation Fund

The firm's first ETF is seeking to beat the S&P 500.

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Reviewed by: etf.com Staff
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Edited by: Mark Nacinovich

Registered investment advisor GGM Wealth Advisors launched its first exchange-traded fund on Tuesday, aiming to beat the S&P 500 by employing a strategy that rotates sector and investing style allocations over the course of a business cycle. 

The GGM Macro Alignment ETF (GGM) is an actively managed fund that holds three sector funds and two “style” funds, such as industry or strategy-specific funds. It chooses the five funds quarterly based on the broader economic outlook it expects over the next quarter. 

GGM has managed a similar strategy with $50 million in assets for its advisory clients since Oct. 17, 2018. The strategy returned an average annualized 11.3% versus the S&P 500’s 11.6%, net of fees, as of Dec. 31, 2022, according to its prospectus. 

The new fund's holdings are based on one of four categories of economic and market conditions, which GGM likens to the four seasons.  

“Imagine you’re going on vacation, but don’t know if you’re going skiing or going to the beach, it’s hard to know what to pack. Investing is the same way, if you’re buying tech heading into a recession or utilities during a period of strong growth, it’ll be like bringing skis to the beach,” Jeffrey G. Johnson, president of GGM and portfolio manager of the fund, said in an interview. 

Allocation Based on Economic Forecasts 

While the fund uses more than 90 metrics to determine its allocation, the primary ones are forecasts of economic growth and inflation. The fund’s “spring” allocation is for when growth and inflation are rising, summer is for when growth is rising but inflation is falling, autumn is for when growth is falling but inflation is not, and winter is for when both are declining. 

The exact makeup of each seasonal allocation will change over time, but Johnson says that there will be consistent themes. The fund’s allocation for the fourth quarter is its “winter” allocation, which is roughly even split among the Utilities Select Sector SPDR Fund (XLU), the Consumer Staples Select Sector SPDR Fund (XLP), the Health Care Select Sector SPDR Fund (XLV), iShares U.S. Medical Devices ETF (IHI) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL). 

The winter portfolio allocation is the only one of the four that holds bonds. The other three are 100% in stocks. Johnson says he expects to end up with a winter allocation for the next two quarters. 

Beat the S&P 500 or Go Home 

Johnson said he understands that beating the S&P 500 is hard. During the construction of the fund, he said people asked if he wanted to use an easier benchmark for the fund, but refused because his clients are benchmarked to the S&P, so the fund should be too. 

“We always tell our clients ‘If we can’t be the S&P 500 you might as well not hire us and buy the S&P 500,’” he said.

The goal with the fund is to deliver outperformance with less risk than the S&P 500. Johnson said that the strategy the fund is based on outperformed in 70% of the quarters since its inception and had roughly 70% of the volatility of that index. 

GGM doesn’t have plans to launch any more ETFs in the future, but Johnson says it’s a possibility if this fund is able to attract assets and the firm has another strategy it thinks will outperform the market.

The fund’s expense ratio varies between 0.88% and 0.91% based on the funds it holds. 

Contact Gabe Alpert at [email protected]        

Gabe Alpert is a former data reporter at etf.com with over seven years’ experience in financial journalism. He also previously contributed reporting and analysis to Barron’s Magazine, Investopedia and other publications.