Perhaps that’s why our ETFG Dynamic Model Portfolios continue to favor equally-weighted
and Small-Cap funds in the most recent reconstitution which was completed on
October 1st. All 4 of the
base portfolios and the 8 “tilts” were updated and for the first time in recent
memory, the domestic sleeve of the portfolio remains relatively static with
only minor changes to the positioning of the funds without impacting their
overall makeup. All four of the funds from the third quarter allocation, the Direxion
NASDAQ 100 Equal Weighted Fund (QQQE), the SPDR S&P 400 Mid Cap Value ETF
(MDYV), the SPDR S&P 600 Small Cap Value ETF (SLYV) and the SPDR S&P
600 Small Cap ETF (SLY) return for another quarter with QQQE holding onto its
top spot in the line-up once again. The only significant change was a shift
towards more Small-Cap exposure with MDYV’s weight in the portfolio dropping as
higher sentiment scores raised SLY and SLYV’s overall ETFG Quant scores.
While U.S. equities (and our domestic sleeve) may have
been a sea of calm in the third quarter, international ETFs continued to
struggle despite a seesawing dollar. But while international funds as a whole
may have underperformed, the dynamics of individual markets and currencies mean
there were several bright spots for discerning investors as certain funds did
quite well including iShares MSCI South Korea ETF (EWY) along with a number of
Asian funds including iShares MSCI Japan (EWJ) and iShares MSCI Taiwan (EWT) although
the biggest winner for the quarter was the iShares MSCI Poland ETF (EPOL) up
over 9.5%! The key criteria for their
success seems to come down to the third of our “T” factors, President Trump, as
all four are considered increasingly important U.S. allies in the burgeoning
trade war.
That trade war may explain the on-going shift in the
international, developed sleeve as three of the four funds left after the end
of the quarter with only EWY remaining in the program. The new funds in the
allocation give it a decidedly European flair thanks to the addition of the SPDR
STOXX Europe 50 ETF (FEU) along with the iShares MSCI Italy ETF (EWI), which
has suffered over the last few months as their new government, led by the Five
Star Movement, enacts a more populist agenda at odds with the E.U.’s focus on
balanced budgets. The net result is likely to be more short-term pain, although
the high sentiment and fundamental scores could add more fuel to the fire of an
eventual rally, if the Italian government’s deficit spending plans help ignite
a period of stronger growth much as it has here in the U.S.
Finally, our emerging markets allocation also saw
noticeable changes as the iShares MSCI Emerging Markets ETF (EEM) was replaced
by the iShares Latin America 40 ETF (ILF), which offers a more direct approach
to two of the better performing markets over the last quarter, Brazil and
Mexico. Whether that performance continues is likely going to be driven by
politics, including the winner of the upcoming Brazilian election, although
recent polling suggests that voting will likely extend to a second round. That
could create more volatility and opportunities, as the situation develops in
October.
You can find an overview and
performance information for the ETF Global Dynamic Model Portfolios at http://www.etfg.com/about-model-portfolios
_____________________________________________________________
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