Wednesday, April 7, 2021 – While the COVID-19
pandemic remains far from over, key elements to a transition to normalcy began
to either take root or accelerate in the first quarter of 2021. Domestically,
the outlook brightened considerably with supportive fiscal and monetary stimulus
and a promising vaccination rollout. By the end of the quarter, the federal
government had authorized, and was in the process of deploying, another $1.9
trillion in COVID-19 relief, bringing the total fiscal support to nearly $5
trillion since the onset of the pandemic in March 2020. The optimism sparked by
this new, sizeable relief package was bolstered by the Federal Reserve’s pledge
to continue to hold interest rates near zero and a vaccination campaign that
has yielded around one-third of all U.S. adults receiving at least one vaccine
dose as of the end of March. It is against this backdrop that we present our ETF Global Dynamic Model
Portfolios quarterly update.
While the composition of our equity fund allocations
changed noticeably from Q1 to Q2, several factors remained in favor by our
model. The size and value factors continued to score well. This orientation
towards the size and value factors first emerged towards the end of 2020, as
investors began to look beyond high-flying technology companies and towards
beaten-down sectors that would benefit from a post-COVID economic reopening.
In our domestic equity allocation, the size factor
figured prominently. Three of our four domestic equity positions are either mid
or small cap funds, with our top ranked fund being the iShares S&P Mid-Cap
400 Growth ETF (IJK). This replaced the iShares S&P Small-Cap 600 Value ETF
(IJS), which moved down to our third ranked spot. As in the first quarter,
value remained in favor by our model, occupying two of the four funds in our
domestic equity allocation. However, in a reversal from past quarters, our model
now sees merit in the growth factor, with our first and fourth ranked domestic
equity funds having growth tilts. After being outperformed by value stocks on a
year-to-date basis by the widest margin since 2001, our model indicates that
the growth sell-off may have been overdone and there are some attractive
opportunities within the space.
Internationally, our two single country positions held
steady. However, there was an interesting shakeup in the regional and factor
orientations of our other two positions. Occupying the top spot, the Pacer
Trendpilot European Index ETF (PTEU) supplanted the WisdomTree International
Multifactor Fund (DWMF). In the second position, the Schwab Fundamental
International Large Company Index ETF (FNDF) replaced First Trust Developed
Markets ex-US AlphaDEX Fund (FDT). Last quarter, our model favored broad
regional and factor exposures. Now, there has been a shift towards more
targeted exposures, with emphases on developed European equities and the value
factor. This shift captures a key trend in our model that previously
out-of-favor groups appear poised to benefit as vaccinations and economic
re-openings gather pace.
Echoing our other regional equity allocations, the value
factor held primacy within our emerging markets allocation with the Schwab
Fundamental Emerging Markets Large Company Index ETF (FNDE) ranking as our top
fund. As with our international allocation, there was a similar Q1 to Q2 shift
from multifactor to value and broad-based to regional funds.
Thank you for following the ETF Global Dynamic Model
Portfolios, you can find an overview and performance information at http://www.etfg.com/about-model-portfolios. To learn more about our ETFG Model Portfolio
strategy, please email us at [email protected]
or call us at (212) 223-ETFG (3834).
ETFG 21 Day Free Trial: https://www.etfg.com/signup/quick
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and are subject to change without notice.
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