There is plenty of downside risk in today’s equity markets due to slow global growth and investors need a “Post-Modern Portfolio Theory” to face it head on, said Chuck Self, portfolio manager for the iSectors Post-MPT Growth ETF . The PMPT, launched this past August, is an actively managed ETF of ETFs that uses a quantitative investment model designed to improve upon the principles of Modern Portfolio Theory (MPT). The strategy uses monthly changes in more than a dozen capital market and economic factors, including interest rates, money supply, inflation and unemployment rates, as it seeks to maintain an optimal portfolio allocation. To achieve this, PMPT invests in nine low-correlated asset classes, including basic materials, bonds, energy, financials, gold, healthcare, real estate, technology and utilities. Right now Self said the PMPT is overweight the iShares U.S. Utilities ETF after it dropped over 7% in value in recent weeks. Much of this decline is due to concerns that the Federal Reserve is going to increase interest rates soon. “We do not believe the Fed will raise interest rates this year due to very low inflation,” said Self. “Also, there is enough growth to increase demand for utility output. With a 3.7% yield, investors may receive price appreciation while earning an above-average current yield.” The PMPT also holds the iShares U.S. Energy ETF , saying that the recent price action and proclamations from oil producing countries is leading to the view that oil demand and supply is close to being in balance. “As long as we don’t go into a recession in the US or globally, which we don’t believe will happen, the demand for energy will increase and these stocks will appreciate,” said Self. Self said he is also bullish on the fund’s allocations to the ProShares Ultra 20+ Year Treasury ETF and the Vanguard REIT ETF . “REITs have just recently eclipsed their pre-recession highs and the commercial real estate market is recovering nicely,” said Self. “We believe it’s going to continue to do so. In the meantime, VNQ offers a 3.25% yield and a diversified way to invest in the commercial real estate market recovery.”
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