ETFs have revolutionized the ability for the main street investor to achieve benefits previously confined within the walls of large institutions. However, an ETF portfolio constructed without careful attention paid to the profile of issuers comprising it, or the numerous factors impacting its overall quality, can dramatically blunt the efficacy of their deployment. The whole premise of selecting ETFs is rooted in the benefits of asset allocation that they offer, yet certain selection pitfalls can occur when sifting through the hundreds of available offerings. Before delving into how we specifically attempt to navigate this for the benefit of our clients, let’s first explore the merits of institutional asset allocation.

Institutional asset managers have long leveraged asset allocation as a powerful tool for return variability management, i.e. attempting to mitigate performance impacts from anything but price movements of their underlying indices. Asset allocation also can have a greater impact on the variability of your overall return than any individual security within your portfolio. For long term investors, the key is to have a sound, clear execution plan in harnessing all of the rewards that a prudent asset allocation strategy can deliver. Our diversified ETF-based strategies have been designed to achieve precisely that, bringing the tools traditionally deployed within a large institution to the individual investor.

The first step to asset allocation design is categorizing the opportunity set of an investable universe.  The core variable here is the universal feature behind every security. . .