Every day I am asked to explain how the Chartwell ETF Advisor goes about picking exchange-traded funds for its model and customized portfolios. Of course picking ETFs is the easiest part of the process. Blending them and managing them in a portfolio that suits a particular investor’s goals, personality and risk profile is the hard part. But let’s start with how we select ETFs for the seven model portfolios that members then need to evaluate on their own or even better with the help of their financial advisors.
First, our approach is decidedly global and strategic. For example, some of the basic themes that have colored our ETF selections over the past few years are an Asian tilt, Southeast Asian countries as the best proxy for Chinese growth, undervalued and underappreciated European companies, Japan’s economic recovery, Eastern European growth and the secular bull market in energy and commodities.
Going forward, the themes will be adjusted or discarded and I try to be contrarian at the margins since that is where you will oftentimes find value. From the broad themes we move to more specific ETF selection criterion which include:
1) Momentum - above 30, 50 and 200 day moving average
2) Valuation ETFXRAY - p/e average, price to book and other metrics for composite of top holdings
3) Macro considerations - direction and pace of economic growth, currency, interest rates, political considerations, price of overall market relative to other global markets
4) Capital flows - direction and trend of net monthly flows by global equity managers
5) Point and figure charting to identify resistance and support levels and check on timing
Check out our results.
By Carl Delfeld of the Chartwell ETF Advisor
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