General Allocation Guidelines – Growth Objective

Growth Objective

A typical growth portfolio (designed to beat broad market indexes like the S&P 500 over time through our Upgrading strategy, but with similar risk) is composed primarily of core mutual funds and ETFs. We generally hold between seven and twenty core funds in a growth portfolio, but individual investors can get away with as few as five and be reasonably diversified. We model our core holdings as equally weighted, but tend to take larger positions in larger funds that are less restrictive or ETFs that we believe trade with sufficient liquidity. We sometimes take small positions in highly ranked funds that are harder to trade (either due to size or restrictions) or we skip these funds in favor of other highly ranked candidates. We take smaller positions in more speculative funds and restrict total exposure to speculative funds to less than 1/3 of a growth portfolio. In total, our typical growth portfolio will hold at least 30 mutual funds or ETFs, providing broad diversification.

Summary: A growth portfolio holds larger positions in diversified core mutual funds and ETFs and limits exposure to speculative funds.

General Allocation Guidelines – Conservative Growth

Conservative Growth Objective
A typical conservative growth portfolio is designed to participate in market gains using our Upgrading strategy and buffered by an allocation to our Flexible Income strategy. A conservative portfolio holds the same core mutual funds and ETFs as our growth portfolios, but avoids speculative funds altogether, and generally holds about 40% in fixed income funds, cash, or low volatility alternative funds based on our flexible income strategy.

Summary: Conservative growth portfolios hold the same core mutual funds and ETFs as growth portfolios, but avoid speculative funds altogether and hold significant exposure to our Flexible Income strategy to buffer volatility.

General Allocation Guidelines – Aggressive Growth

Aggressive Growth Objective
A typical aggressive growth portfolio (for clients willing to take more risk in hope of greater potential return) holds the same mutual funds and ETFs as our growth portfolio, but with twice the weighting to speculative funds. Also, each holding is equally weighted (except if liquidity is a consideration), implying that each core fund will typically be a smaller holding relative to a growth portfolio, and each speculative fund will have a greater weight in the aggressive portfolio. We maintain a meaningful allocation to core funds in aggressive portfolios, except in our ETF-only aggressive portfolios where we are willing to invest 100% in speculative ETFs because there is no minimum holding time per position.

Summary: Aggressive portfolios hold the same funds and ETFs as a growth portfolio, but take larger positions in speculative funds, and total exposure to speculative funds is twice that of a growth portfolio.

Tactical Portfolio Overview

Most of our portfolios are fully invested at all times, and we manage risk through the total number of holdings, limiting the allocation to more speculative funds, and by allocating part of most client portfolios to multiple strategies including our Flexible Income strategy.

We also manage Tactical portfolios designed to increase and decrease equity exposure based on objective measures of current market risk. We use our Upgrading strategy for buy and sell decisions in all portfolios including our Tactical portfolios, but Tactical portfolios may also hold considerable cash, and their equity holdings may be hedged in a variety of ways based on our current observations of market risk vs. reward potential.

Our primary tactical model is a composite of risk measures (signals) based on valuations, investor sentiment, the strength of a market trend, market breadth, monetary conditions and the relative attractiveness of stocks versus bonds and cash. We weight our allocation decision based first on a composite score across the model’s signals, but we also may respond to divergences between the individual signals that shape the tactical model.

Our Tactical portfolios hold mutual funds and ETFs based on Upgrading, very similar to those held in a growth portfolio. We emphasize ETFs so we can more actively add or reduce equity exposure, and we can raise cash and buy or sell options to help manage risk exposure. We may also hold “inverse ETFs” that gain when a market index declines and decline when the index rises. Our Tactical Total Return strategy includes an allocation to our Flexible Income strategy.