/4Q Rebalance – ETF Global Dynamic Model Portfolios

4Q Rebalance – ETF Global Dynamic Model Portfolios

Tuesday, October 8, 2019– At first glance, it looks like the bulls are back in charge of their own destiny.  The tug of war between the Federal Reserve and the President was seemingly resolved in the 3rdquarter by the Fed cutting rates for the first time in over a decade as a weakening economy undercut its argument for a stable rate policy. Bullish investors were quick to celebrate by pushing the S&P 500 back above the 3,000 mark before the realization hit that the Fed lowering rates wasn’t an early Christmas gift after all.  The Fed felt compelled to lower rates because the economic outlook demanded it, a fact which left investors even more unsettled. The most widely tracked index, the S&P 500, ended up slightly over 1% for the quarter.

The obvious answer of course was if at first you don’t succeed, try, try again. With the Fed showing no signs of relenting, the markets remain deeply unsettled as we entered the final quarter of 2019. The tug of war between the Fed and the markets won’t be resolved anytime soon if ever, but the ETFG Dynamic Model Portfolios wait for no one with all 4 of the base portfolios and the 8 “tilts” being updated on October 1st with major changes happening in all three sleeves of the portfolio. Investors may still be debating whether this market still has room to run but our Quant Model has come down firmly on the side of better safe than sorry as value takes precedence over growth throughout our model portfolios.
First is the domestic allocation, where the iShares Russell Midcap ETF (IWR) and the WisdomTree U.S. SmallCap Dividend Fund (DES) are removed to be replaced by the SPDR S&P 400 Mid Cap Value ETF (MDYV) and the SPDR S&P 400 Mid Cap Growth ETF (MDYG) which takes the lowest spot in the domestic sleeve. Staying in the portfolio for the final quarter are the SPDR S&P 600 Small Cap Value ETF (SLYV) and the SPDR Portfolio S&P 500 Growth ETF (SPYG.)
Blending that combination of growth and value funds might sound like the best way to a perfectly “core” portfolio but under the hood you’ll find a very different situation. MYYV and SLYV are the two top selections, ranked by their overall ETFG Quant Score, which puts them into the driver seat with many of the “tilts” in the conservative, moderate and balanced strategies having a clear bias towards both value and mid-cap stocks. Investors shouldn’t fear this means a rotation in utilities or REITS as both funds are underweighted in those categories while overweighting technology and industrial names.
Our ETFG Quant model also has made significant changes to the international allocation with the replacement of the Schwab Fundamental International Large Company Index (FNDF) and its small cap equivalent, FNDC with two new funds with a distinctly European focus. Joining the model for the 4th quarter are the iShares Edge MSCI Min Vol Europe ETF (EUMV) and ProShares MSCI Europe Dividend Growers ETF (EUDV) as the Quant Model continues to favor more value-oriented products. Like most minimum volatility funds, EUMV has larger allocations to defensive sectors while heavily concentrated EUDV (with just 34 holdings) focuses on companies that have consistently grown their dividends over a ten-year period.
The emerging market allocation also saw significant turnover this quarter as the iShares Edge MSCI Multifactor Emerging Markets ETF (EMGF) was replaced by the FlexShares Morningstar® Emerging Markets Factor Tilt Index Fund (TLTE) while the First Trust Chindia Fund (FNI) remains for another quarter.  EMGF was a strong performer but TLTE’s stronger fundamental score pushed it into the model for the 4th quarter. How does it differ from EMGF? They have similar weightings to the same markets but EMGF had more of a focus on momentum and TLTE has a preference for value names along with a slightly higher tilt towards smaller stocks.
To learn more about our ETFG model portfolio strategy, please email us at [email protected] or call us at (212) 223-ETFG (3834).
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Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.  ETF Global LLC (“ETFG”) and its affiliates and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively ETFG Parties) do not guarantee the accuracy, completeness, adequacy or timeliness of any information, including ratings and rankings and are not responsible for errors and omissions or for the results obtained from the use of such information and ETFG Parties shall have no liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of such information. ETFG PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.  In no event shall ETFG Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information contained in this document even if advised of the possibility of such damages.

ETFG ratings and rankings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. ETFG ratings and rankings should not be relied on when making any investment or other business decision.  ETFG’s opinions and analyses do not address the suitability of any security.  ETFG does not act as a fiduciary or an investment advisor.  While ETFG has obtained information from sources they believe to be reliable, ETFG does not perform an audit or undertake any duty of due diligence or independent verification of any information it receives.

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