Byron Green is an adviser to advisers.

The president of Fort Worth, Texas-based Green Investment Management doesn't work with retail investors. Instead, his 24-year-old firm designs and oversees portfolios for financial planners and their clients around the country. "Our expertise is managing money, not estate planning or insurance," said Green.

As such, the firm's portfolio managers have developed 13 different asset allocation models. Most of those portfolios are focused on exchange-traded funds. But his staff also will use institutional-level mutual funds in some cases.

"ETFs are very tax-efficient and an effective way to invest from a cost standpoint," said Green, who estimates his firm has some $120 million in assets under management.

He also says his managers appreciate the flexibility ETFs provide in applying the company's analysis of markets across different sectors and asset classes. Green prefers to take what he describes as a big-picture approach to tracking markets rather than fundamentally analyzing individual stocks.

"ETFs are at the core of our methodology and approach to managing portfolios," he said.

Taking A Global View

Five of Green's models are built to provide exposure to markets worldwide. "Each has a segment of fixed income, international equities, U.S. equities and other asset classes. They're all managed with the same strategy, but allocations differ according to individual risk profiles and investment horizons," said Green.

Typically, the firm starts with core ETF positions. "We break down the Russell indexes and use ETFs in four asset classes—large growth, large value, small growth and small value," said Green. "We'll always have money in each of those. But if we have more confidence in one area of the market, we might overweight that style a bit."

Over the longer term, he tends to tilt more toward value stocks. Lately, though, he has been investing more into the iShares Russell 2000 Growth Index (NYSEArca: IWO) and the iShares Russell 1000 Growth Index (NYSEArca: IWF). "We're actually equal-weighting value and growth in our portfolios now," said Green. "Since we normally slant towards value, that represents an overweight in domestic growth for our clients."

Optimistic About A Recovery

The growth shift in his portfolios started about six months ago. Green says it stems from his firm's belief that markets are positioned to recover in the near future. "The fundamental picture of our economy seems to be pointing to some sort of positive growth late this year or early next year. Either way, we're coming to a juncture where signs are encouraging," he said.

The current stock market rally is revealing another positive sign, adds Green. "Some of the less-defensive sectors are participating strongly in this rebound," he said. "Over the last 30 days, Basic Materials are up more than 20%. And a lot of the retail stocks are showing very strong performance, with roughly a 40% rally over the past 30 days. Both signs indicate people are becoming more optimistic."

By contrast, Green notes that utilities in the S&P 500 are down slightly in the past month and Healthcare is down more than 7%. "Those are sectors that investors flocked to when markets were under severe pressure," he said. "Now, they seem to be moving into more-cyclical areas."

In particular, Green's expecting technology to outperform in the next several years. He points out that information technology stocks in the S&P 500 have rallied more than 25% in the past 30 days. "Although we expect the economy to start growing again, it appears to be a slower-growth scenario," said Green. "In that environment, tech stocks are positioned to do well."

Coming on the heels of two relatively recent recessions—the first ending in 2002 and the latest, which officially started at the end of 2007—Green believes valuations on U.S. equities are still extremely attractive. "With so much fear in the market, investors have sought safety in bond funds," he said. "Going forward, with so many people locked into low-yielding Treasuries and other relatively low-returning areas of fixed income, we think that stock valuations will remain attractive."

Tilting To The U.S.

Currently, the firm's typical globally balanced stock portfolio has about 55% in U.S. equities with almost 30% in foreign-focused ETFs. The other 15% is allocated to alternative funds such as the iPath S&P GSCI Total Return Index ETN (NYSEArca: GSP) and the PowerShares Listed Private Equity (NYSEArca: PSP).

To provide international exposure, the firm owns the Vanguard Emerging Markets Stock ETF (NYSEArca: VWO) and the iShares MSCI EAFE Index (NYSEArca: EFA) in globally balanced plans.

Green also builds portfolios with allocations 100% devoted to international ETFs. Those are marketed as its Guardian Country Allocation plan. Last year, the firm's Guardian Country Allocation model portfolio ranked in the top 3% among private account managers in foreign large blend categories, according to Morningstar Inc. In 2009 through last week, the portfolio was up more than 3% compared to the EAFE index's greater-than 10% loss.

In an average year, Green estimates that the turnover rate in the firm's globally balanced portfolio is around 100%. In the Guardian Country Allocation model, those rates tend to be much higher—probably around 200% per year, he adds.

"The volatility can be much higher using country-specific ETFs. But we actually reduce risks while maximizing returns by managing those portfolios more actively," said Green.

The country-specific portfolio now is evenly weighted between five iShares ETFs: South Korea (NYSEArca: EWY); Japan (NYSEArca: EWJ); Brazil (NYSEArca: EWZ); South Africa (NYSEArca: EWA) and China (NYSEArca: FXI).

"The U.S. economy went into a tailspin first. We'd expect the rest of the world to follow our rebound. So our investment overseas is anticipating longer-term growth prospects rather than any shorter-term view," said Green.