Sunday, June 4, 2023

The ETF Portfolio Strategist: When Will Risk Management Edge The Risk-On Rise?


Beta risk continued to beat our actively managed risk strategies last week. The outperformance was slight, but it’s enough to keep the global 16-fund opportunity set—Global Beta 16 (G.B16)—humming in the leadership position. This opportunity set represents the playfield field for the active strategy (see last table below for list of funds).

G.B16 earned 0.2% for the trading week through July 2, just ahead of our trio of proprietary strategies, two of which rose 0.1% while a third was flat. For details on strategy rules and risk metrics in the tables below, please see this summary.

Longer term, Global Managed Volatility (G.B16.MVOL) continues to outperform on an absolute basis. Meanwhile, all three strategies are generating positive alpha over longer-run periods after adjusting for risk. But the headwinds for outperformance continue to persist this year as unmanaged beta runs hot. The question is when will risk management begin to provide an edge again relative to unmanaged portfolio risk?

Global Momentum’s (G.B16.MOM) month-end rebalancing schedule moved the strategy to a slightly more risk-on posture via a buy signal for iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:). As a result, 14 of 16 funds for G.B16.MOM are now risk-on—the most since January.

Global Managed Drawdown (G.B16.MDD) also shifted to a slightly more aggressive risk profile last week after a buy signal was issued for WisdomTree Continuous Commodity Index Fund (NYSE:). Nonetheless, G.B16.MDD remains relatively cautious re: risk exposure vs. the other two active strategies.

Meantime, Global Managed Volatility (G.B16.MVOL) remains all-out risk-on, which is to say that its portfolio in recent history continues to match the risk profile for the benchmark (G.B16).

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