I nvestors in NorthCoast Asset Management's Tactical Growth portfolio expect versatility. The portfolio seeks to protect capital during downturns and shift toward opportunistic calls as conditions improve.
"Tactical Growth is for investors with a higher appetite for risk," said Patrick Jamin, chief investment officer for NorthCoast. "It is generally a periphery allocation and not the core of a portfolio."
Tactical Growth uses top-down research to invest in a basket of ETFs. "ETFs are very cost effective, tax-efficient and transparent," Jamin said. "They also allow us a broad reach and are very liquid."
NorthCoast employs tactical shifts across asset classes as market outlooks change. "In more bullish periods, the portfolio is going to be fully allocated to equities," Jamin said. "If we identify a more perverse environment, we may allocate 70% to equities and 30% to bonds. We may allocate 50/50 or even all the way down to being fully invested in bonds."
As NorthCoast determines its equity allocation for its ETF retirement portfolios , the firm gives careful consideration to the prospects of specific countries. "From our improved baseline, we are then going to overweight or underweight different regions," Jamin said. "For example, by relying on our models, we could end up being overweight Europe vs. the U.S."
Jamin and his team rely on an array of technical, valuation, sentiment and macroeconomic data to manage Tactical Growth. "Our investment process is very well-suited to remaining factual and not letting emotions guide investment decisions," he said. "Our models are back-tested in-sample and out-of-sample and are supported and implemented by a knowledgeable investment committee."
At the end of September, Tactical Growth was invested in nine ETFs with iShares Core S&P 500 ETF ( IVV ) holding on to the top slot. "Our investment program is targeting a broadly diversified equity allocation," Jamin said. "Naturally we're going to be allocated to U.S. large caps."
Emerging Market Prospects
Jamin took a position in the iShares MSCI Emerging Markets ETF ( EEM ) as the fund pulled back late in the month. "We are more bullish on emerging markets right now," he said. "They have suffered, but fundamentals have remained healthy. At these prices, our models indicate the level of risk in emerging markets is worth taking."
Shares of EEM fell 6.1% in September and are down 19.3% on the year.
To make room for EEM, NorthCoast parted ways with iShares MSCI Pacific ex Japan ETF ( EEP ), which is heavily weighted with Australian stocks. "It was no longer scoring attractively in our models," Jamin said. "Australia has been challenged by lower energy and materials prices."
Tactical Growth has kept a healthy exposure to Europe and Japan via iShares MSCI Eurozone ETF ( EZU ) and iShares MSCI Japan ETF ( EWJ ). "We are about 5% to 10% overweight Europe and Japan," Jamin said. "Our metrics are indicating attractive valuations in Japan. Europe is showing very good sentiment indicators and its macroeconomic environment is well known at this point so we are confident it is a region to be overweight."