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Leuthold Global Tactical ETF Portfolio


Investment Philosophy


Invest Where There Is Value; Sell Unnecessary Risk

We believe the most important investment decision is proper asset class selection, which requires a highly disciplined and unemotional approach to evaluating risk/reward potential. We adjust asset class exposure to reflect our view of the prospective opportunity and/or risk offered within each category. Flexibility and discipline are central to navigating the markets as conditions change.

Our formula for long-term survival and success is based on quantitative measures of value combined with recognition of fundamental and technical trends. A good dose of contrary opinion is also an important component.

Three Building Blocks for Investment Decisions

Value Recognition

Identify areas of overvaluation and undervaluation.

Trend Analysis

Distinguish investable themes, concepts, and underlying trends as the market environment evolves.

Leadership Expectations

Recognize emerging leadership and non-consensus ideas; develop positions during the early stages.


Portfolio Overview


Objective

Seek capital appreciation and income (or “total return”)

ETF Investment Universe

Open architecture

Benchmark

60% ACWI/40% Barclays U.S. Aggregate Bond

Global Asset Classes

Equities, Fixed Income, Alternatives (REITs, Commodities, Other)

Target Ranges

Equities = 20%–80% Fixed Income = 20%–60%
Cash and Alternatives = 0–20%


Investment Process


Utilize fundamental and quantitative tools that have been refined and expanded during 30 years of managing tactical asset allocation (TAA) portfolios.

Major Trend Index (MTI)

Our Major Trend Index is utilized to set the portfolio’s net equity exposure (potential range of 20%-80%). When the MTI composite reading (ratio of positive to negative points from five major categories) is above 1.05, it is deemed “Positive” toward stocks, while a ratio below 0.95 is considered “Negative.” Readings between 0.95-1.05 are Neutral. This index is designed to recognize major market trends combining over 130 individual components. The five factor categories include:

Equity Disciplines

Valuation

Measure historical and relative valuation using fundamental metrics such as free cash flow yield, normalized earnings yield, and intrinsic value.

Growth

Measure fundamental growth rates including sales growth, EPS growth, and earnings revisions.

Technical

Evaluate technical strength or weakness using proprietary Chart Score algorithm.

Leadership

Identify market leadership trends using proprietary Reverse-Adjusted Momentum, VLT relative strength, and VLT momentum models.

Fixed Income Disciplines

Risk Allocation Model

Evaluate the relative attractiveness of Treasuries versus Credits.

Inflation Allocation Model

Evaluate the relative attractiveness of nominal versus inflation-protected assets.

Credit Allocation Model

Measure the risk/return trade-offs across credit ratings.

FX Overlay

Consider currency’s impact on the risk and return of foreign bonds.

Tactical Asset Allocation Committee

Studies the scope of firm research to identify tactical tilts suitable for the managed ETF portfolio.

  • Evaluate asset class characteristics and select a neutral, defensive, or aggressive stance for each trade-off.
  • Asset class positions are measured relative to benchmark exposure and scaled to reflect potential pay-off, conviction, and risk.
  • Opportunistic positions such as sectors, regions, factors, and other narrower elements have a “neutral” weight set at zero. Each is judged on its individual merits.

Leuthold Global Tactical ETF portfolio reflects ideas based on the full breadth of our firm’s market analysis efforts, and in particular, current concepts drawn from our research and our domestic/global sector analysis.

  • This is a dynamic, go-anywhere portfolio, centered on a 60% Equity/40% Fixed Income mix, but has wide latitude to make tactical shifts in any direction.
  • The flexible mandate allows us to deliver timely ideas in a single TAA portfolio.

Active overweight and underweight decisions reflect the return/risk/conviction/judgment underlying each tactical position.

The heaviest-weighted active tilts are placed in assets where:

  1. Valuation is attractive;
  2. Fundamentals and Technical factors are improving; and,
  3. The asset is beginning to demonstrate market leadership.

ETF Selection


While the primary return driver is asset allocation, our rigorous fund selection process is a critical value-added aspect.

  • We offer proficiency in fund due diligence and vetting portfolio managers for inclusion in our universe of eligible funds. Past experience includes building 401(k) fund line-ups for two of the nation’s largest 401(k) platforms
  • Open architecture ETF universe

Process

  1. Determine strategic and tactical tilts.
  2. Due diligence conducted to identify optimal ETFs to best capture the targeted portfolio exposures.

While most ETFs are passive, funds and indexes representing the same asset class can be significantly different in both definition and design.

Due Diligence

  • Index design and holdings
  • Portfolio construction rules
  • Risk/Return measures
  • AUM and liquidity
  • Expenses

After identifying ETFs that best mirror desired exposure, holdings are cross-referenced to ensure that the combined roster of funds employed provides the intended portfolio characteristics, and avoids overlaps or gaps caused by index- specific definitions.

Interested in Investing in a Model?

Contact us if you are interested in investing in our ETF models.