I’ve been thinking, and looking at the numbers of the Goldman, UBS, JP Morgan, Global Equity SMA vehicles and there performance is average at best. If you wanted to construct a 5 etf portfolio to beat this how would you go about it? I’m thinking of building one for a retail product. Could just be as simple as a US SP 500 etf, Small cap etf, EAFE, and then just weight according to what you think will perform the best.
Check out DFA. That little cult seems to think they have it down. Yes, I’m aware they don’t use ETFs, but similar philosophy. The thing about tactically managing a portfolio of ETFs is you’re entirely top-down, and essentially market timing. Two things very few people are good at, and hardly anyone is good at both. Limiting yourself to just category ETFs instead of industry and sector ETFs would be even more difficult. That said, if you want to beat the world index over time, just overweight emerging markets and small cap. On a risk-adjusted basis you’d probably get creamed, but on an absolute basis, I’d bet over 10 years you’d beat the index easily. Good luck with that.
Sweep the leg, That’s what I tried this year, and have been absolutely annihilated. I guess mids, smalls and emerging markets will come back eventually, but man I timed this horribly.
have you tactically manage either security selection, country selection, timing, and currency. very hard can try to do a portable alpha approach and use swap and reinvest in an non-correlated alpha source
Isn’t security selection basically a timing decision too? I mean, why do things ever get overvalued, and when do they correct? And why wouldn’t things that are undervalued get more undervalued?? The way most people approach it, it’s really a timing decision too. As I start to understand more deeply how these models work, it seems to me that overvaluation/undervaluation decisions only make sense over very long holding periods. But if you have very long holding periods, a) the alpha you are likely to identify gets diluted (10% undervaluation turns into 75 bps per year or something), b) there’s plenty of time for other unexpected things to get in the way. There is an advantage of security selection though, which is that you’ve got 1000s of securities to choose from, whereas you may have only dozens of ETFs to work with. With securities, you can make many separate investment decisions, and if you have some analysis talent, then it is easier for it to show up, because the noise is more likely to wash out. I actually do have a simple tactical model that seems to perform pretty well, but unfortunately, I can’t share it, or someone else will hire assassins to kill me (and you).
Thanks for pushing down your work on unsuspecting AFers. I am NOT falling for this one again.