Friday, March 23, 2018

Portfolio+ All Equity Model Portfolio Powered by ETF Global®

Friday, March 23, 2018 - We are excited to announce a new model portfolio strategy in partnership with Portfolio+ ETFs (a Direxion company), the Portfolio+ All Equity Model Portfolio Powered by ETF Global®.  This is the first portfolio strategy utilizing the recently expanded Portfolio+ lineup of enhanced beta or “lightly levered” funds.  The program will not charge a “management” fee, meaning the only expenses are those charged in the underlying Portfolio+ products which are substantially below that of other levered funds and in-line with those charged by Smart Beta strategies.

The Challenges
After years of studying new product launches, one thing that we have come to understand is that Advisors face unique challenges when selecting their equity exposure; such as from which market should the beta be derived? and what’s the best way to achieve it?

Not all markets are created equal, leading to a huge disparity between market returns.  ETPs have made it easier to pick and choose among different Beta sources, but most investors don’t have the time or acumen to forecast domestic returns or to determine whether Developed or Emerging Markets will have the better future risk-adjusted returns.

The Portfolio+ Solution
Regular readers of our “New-to-Market” posts may already be familiar with Portfolio+, Sponsor of six “lightly levered” funds that offer 1.25x leverage to a wide range of the most common investment benchmarks including Domestic Equities, Emerging Markets, Developed International and the Barclays U.S. AGG.  First launched in 2015 under the Direxion label, the series intended to take levered funds, long-known as a tool only for traders, and transform them into long-term holdings vehicles for investors who were already turning to Smart Beta funds to help magnify their equity exposure.  Thanks to the lower leverage target and smaller fees, the Portfolio+ funds have managed to deliver on their return goals and often with less volatility than Smart Beta funds.

Grounded in modern portfolio theory, the Portfolio+ All Equity Model combines the best of both firms to provide the Advisor a solution to those aforementioned challenges.  The ETF Global Quant-based Research, Selection and Portfolio Allocation processes optimize the balance between risk and reward within the Portfolio+ ETFs.  With 100% Equity, the program is strategic in nature, offering enhanced (i.e., lightly levered) exposure to a blend of Domestic, International and Emerging Market equities while tactically adjusting the allocation mix and retaining a high correlation to the MSCI ACWI.  Recognizing that one of the greatest drawbacks of any model strategy is fee layering, ETFG does not charge a management fee.

So how exactly is it “Powered by ETF Global?”
Our firm has long been known as a leading independent, ETF Research and Data provider anchored by our flagship ETF Global Quant Model, a dynamic quantitative ETF rating and ranking system. We rank all unlevered equity funds with at least a twelve-month track record using over 100 daily inputs to arrive at our Green Diamond Reward Scores.  The Green Diamond Reward Score combines Behavioral Finance with both Technical & Fundamental Analyses to provide forward-looking guidance on the attractiveness of funds.  The Red Diamond Risk Scores perform a similar process to address the risk quotient for all ETFs including levered and inverse that have been trading for at least 3 months.  As mentioned, the ETF Global Quant Model and ETFG Green Diamond Reward Scores drive the selection process to optimize the balance between risk and reward within the Portfolio+ All Equity Model.

The Program
Our goal in creating the Portfolio+ All Equity Model was to build a simple and straightforward strategy, offering broad exposure to Domestic and International equities with magnified returns without the complications of Smart Beta strategies.

What makes the Portfolio+ All Equity Model so dynamic is that not only will it adjust its exposure to Domestic, International and Emerging Markets, but it will also shift its domestic portfolio between Small, Mid and Large Cap funds to help position investors in the most attractive section of the style box.  Each day, the ETFG Green Diamond Ranking system drives proprietary algorithms in 25 underlying factors blending Fundamental & Technical Analyses along with Behavioral Finance metrics delivered in an easy-to-follow 1-10 scale for least attractive to most attractive.

While the model itself will be reconstituted on the first Monday of every quarter, the real work begins on the preceding Friday when the Green Diamond rankings are analyzed after market close.  Because our Green Diamond ranks exclude levered products, the model will determine the allocation by comparing the scores of unlevered funds to stand in for the Portfolio+ suite of products.  These unlevered funds share the same reference index as their Portfolio+ ETF counterpart, making them ideally suited to help.

Unlevered Reference Fund
Portfolio+ Fund
SPDR S&P 500
Portfolio+ S&P 500
iShares S&P Midcap
Portfolio+ S&P Mid Cap
iShares S&P Small Cap
Portfolio+ S&P Small Cap
Vanguard FTSE Developed Market
Portfolio+ Developed Markets
Vanguard FTSE Emerging Market
Portfolio+ Emerging Markets

Starting with the Domestic portfolio, the fund whose reference fund has the highest Green Diamond score will be put in the first position with 50% of the portfolio while the second and third ranked funds will each receive 25% of the allocation.  For example, if SPY ends the quarter with the highest ranking, the Portfolio+ S&P 500 ETF (PPLC) will have 50% of the domestic allocation with the other two funds splitting the remainder.

The domestic allocation is just step one in the process.  Next comes determining the overall balance of domestic, developed international and emerging market equity exposure - their portfolio weights are selected using a different system than the domestic portfolio.  While ETFG will once again compare the Green Diamond scores of the reference funds (with the highest scoring domestic fund being used to calculate the percentage allocated to domestic funds), we believe that most Advisors would be extremely uncomfortable with emerging market exposure approaching anything like the 25% minimum weight we use for the domestic allocation.

The emerging markets allocation is capped at 10% even with the highest score while domestic would get 50% allocation and international developed would be 40%.  Or if domestic stocks had the highest ranking, they would get 60% of the allocation while emerging markets would have 5% and international developed would get 35%.  Our expectation is that over time, the macro breakdown will be in-line with that of the ACWI while still offering the possibility of outperformance both through the rotation within the domestic portfolio, adjustments to the macro mix and through the use of lightly levered funds.

Accessing the Program
The Portfolio+ All Equity Model Portfolio will join the Powered by ETF Global® suite of ETF Model Portfolio Programs offered directly from ETF Global and will be introduced to those TAMP platforms, such as SmartX and Vestmark, on which the ETF Global Dynamic Model Portfolio Programs are currently available.

For more information about the Portfolio+ All Equity Model Portfolio, please contact us at (212) 223-3834 or

Thank you for reading ETF Global Perspectives!

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This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.  Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.  Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested.  Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate.  Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor.

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