With tactical investing gaining increasing attention today amid continuing market volatility, I recently sat down with Jeff Buetow, founder of Innealta Capital, to gain his thoughts on tactical investing as it relates to today’s advisors. Innealta is an asset manager specializing in the active management of portfolios of ETFs and serves as a sub-advisor on the PMC Tactical ETF Portfolio Series.
In Part 1 of our exchange, we defined tactical investing and compared it to other modes of portfolio construction.
Here in Part 2, we explore tactical allocation in a broader context, discussing the future of wealth management and the macro outlook.
Mike Henkel: What is unique about your tactical asset allocation model relative to most others?
Jeff Buetow: We are particularly focused on the element of risk. Many tactical managers are focused on the pursuit of alpha. Our model strives to deliver enhanced return but with equal or less risk than a traditional strategic asset allocation portfolio. We design our portfolios to be conservative in the amount of risk allowed; for instance, we will limit our China exposure to 5% of the allocation despite our bullish long-term outlook for that market and the temptation to load up on China assets. We are always managing risk and return simultaneously.
Mike Henkel: What concerns you most over the coming years as it impacts wealth management and portfolio construction?
Jeff Buetow: The capital markets are going to be volatile for the foreseeable future, making the advisor’s role as educator for their clients more important. We are in an era of unknowns with little precedent. Monetary policy is a prime example. The Federal Reserve’s decision to implement another round of quantitative easing (QE2) reflects lack of confidence in the macroeconomic situation. It also represents its own set of risks if too much liquidity is pumped into the system for too long. Expectations are very high for the Fed to “solve” fundamental economic problems, from unemployment to depressed real estate, neither of which is arguably solvable through monetary policy.
Mike Henkel: Given these fundamental problems, what asset classes do you currently like or dislike, and why?