As a result, he's been shifting recently back into REITs. But instead of adding to RWR and VNQ, Armbruster's been advising his clients to diversify overseas. The firm's been adding to its REIT holdings by buying the SPDR Dow Jones Wilshire International Real Estate ETF (AMEX: RWX).

"It's nothing about the timing or a call on valuations," he noted. "The reason why we like it is that international REITs have very low correlations to stocks, bonds and domestic REITs."

Foreign REITs is an asset class his analysts have been watching for awhile. "But it's an area that we couldn't access easily or efficiently at relatively low costs until recently when international REIT ETFs started showing up in the market," said Armbruster. "We've been waiting to see how this ETF performed in terms of tracking error. Our research showed it has done a pretty good job at replicating its index."

The next allocation innovations he sees coming is using ETFs to gain exposure to alternative asset classes. The firm has been studying PowerShares DB G10 Currency Harvest (AMEX: DBV). "They look at the G-10 currencies. They'll short the currencies in the countries with the lowest interest rates. They'll then buy the currencies of the nations with the highest interest rates," Armbruster said.

If interest rates are significantly different among major economies around the world, "the theory is that the currencies will adjust so that your return from this sort of strategy will be zero," he noted.

But historically, that hasn't been the case, Armbruster added. "There actually has been in the order of a 10% return over time from this type of strategy," he said. "And the correlations are very low to traditional asset classes."

If they decide to add the ETF, it'll go as a separate asset class. "It's our answer to hedge funds," said Armbruster. "Everyone wants to be in hedge funds. But there's still a lot of debate over whether you can really add alpha through hedge funds, especially with their fee structure."

So, his firm likes to go with low-cost alternatives focusing on alternative beta "rather than chasing alpha, which may or may not be there," Armbruster added.

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