Positioning Your Portfolio As 2017 Wanes

By John Davi, ETF.com

First, let’s address the recent FOMC announcement, which always brings a healthy amount of debate.

The Fed told us that inflation was softer while economic growth was stronger. It has more conviction in its near-term policy path, while it lowered the long-run neutral rate.

From a big-picture standpoint, the Fed still remains very accommodative, and the same goes for other central banks globally. We still have an upswing in the global earnings cycle that supports international equities whose margin of safety is higher compared to U.S. stocks. Lastly, with the Fed lowering the neutral rate, income strategies should continue to remain in vogue.

Astoria Portfolio Advisors believes the following offer an attractive risk reward: international equities, U.S. small-caps and U.S. cyclicals. And for income strategies, we believe that preferreds, senior loans, emerging market debt, munis and master limited partnerships are attractive.

Let’s walk through a few select ideas.

We remain constructive on EM equities given the weaker dollar, lower rates and cheaper valuations.

  • For our emerging market equities, Astoria is using the iShares Core MSCI Emerging Markets ETF (IEMG) which includes large-, mid- and small-caps in the emerging market complex, as well as the WisdomTree India Earnings Fund (EPI). EM small-cap stocks have a lower beta and lower volatility compared to EM large-caps (see below), which makes it attractive from a portfolio construction standpoint. This is contrary to the U.S. equity marketplace, where small-caps historically have had higher betas and higher volatilities compared to large-caps.

Positioning Your Portfolio

Sources: Bloomberg, Astoria Portfolio Advisors LLC

  • We are secular bulls on India, and previously highlighted why (read here).
  • For our international equities, we are using the iShares MSCI ACWI ex U.S. ETF (ACWX), the Deutsche X-trackers MSCI EAFE Hedged ETF (DBEF), the WisdomTree Japan Hedged Equity Fund (DXJ) and the WisdomTree Japan Hedged Quality Dividend Growth Fund (JHDG).
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Disclosure: At the time of writing, Astoria Portfolio Advisors owned positions in IEMG, EPI, ACWX, DBEF, DXJ, JHDG, DFE, EWX, SCHC, SCZ, VTI, SCHA, KBWB, XLE, PFF, EMB, HYD, BKLN, SRLN, ...

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