Last week on our podcast we had the pleasure of speaking with two exchange traded fund (ETF) strategists live in our studio for the hour—Steve Blumenthal, founder of CMG Capital Management, and Corey Hoffstein, Founder and Chief Investment Officer of Newfound Research.
Both Steve and Corey are quantitative investment managers and both incorporate elements of tactical portfolio management within their investment programs servicing primarily other financial advisors.
Momentum and trend following are key determinants of tactical portfolio rotation for both firms – but Hoffstein’s firm also incorporates ETF portfolio solutions that incorporate value investing, ‘carry’ as a factor and even defensive investing.
Markets priced for 2-4% Returns?
We discussed the market environment and the case for equities today. One thing that differentiates CMG and Newfound – Blumenthal commented that while he expects forward equity returns over the longer- run to be between 2-4% per year, he does not think valuations can be used as a guidepost for short-run decisions. Hoffstein’s firm, on other hand, incorporates capital market assumptions and valuations to adjust their expected returns in building certain long-run oriented portfolios.
Hoffstein’s firm was founded in 2008 and everyone was looking for risk management strategies when, certainly with hindsight, investors should have been embracing equity market risk. Today, Hoffstein believes investors are more complacent with the strong gains in equities we have witnessed since the bottoming of the crisis in ’09, and most investors are just moving away from active portfolio management to passive, low cost, ‘beta’ solutions.
Building Trending Global Portfolios
Blumenthal describes his firm’s core offering, a global product that evaluates 11 different portfolio sleeves – each with 8-10 different possible holdings—with higher beta exposures to lower beta exposures. Each of the 11 models are run using a relative strength model to evaluate the winning in each of 11 portfolio sleeves. They rotate this trading strategy as a way to achieve strong returns in the market. This portfolio is often used as an alternative allocation to traditional stocks and bonds and often in the role of 10-15% of a portfolio.
