Casey Smith likes to rebalance portfolios once a year. Typically, that happens in the summertime.

But after last year’s economic downturn, the Marietta, Ga.-based adviser says he and his team almost pulled the trigger early. The institutional and high-net-worth investors Smith serves were calling for change as world credit markets dried up and stock markets went into a free fall.

“We took a harder look at risk and did more analysis of the changing relationships between different asset classes and how they reacted during the worst of the crisis,” said Smith, president of Wiser Wealth Management Inc.

Since most of his investors were already overweighted in bonds, Smith decided to stay put. “That over-allocation played to our advantage while the market was going down. It gave us a good reason to stick to our process and not try to time the markets,” he said.

Revamping Portfolios

The firm, which builds portfolios using exchange-traded funds, started its regular annual rebalancing last week. “We’ve revamped portfolios and gone back to a much simpler approach to investing,” Smith said.

That means weeding out ETFs that involve complex strategies. “In hard times, we found that many of the most complex strategies got killed. So we decided to put safety as a priority. And that relates directly to liquidity and straightforward investment themes,” said Smith.

While aggressive portfolio allocations haven’t changed much in the past year, Wiser has made some significant tweaks in more conservative strategies. For example, in moderate portfolios, clients are now holding about 17% international stock ETFs. That’s a fall from about 23% from a year earlier.

“We’ve increased our emerging markets exposure and added international small-cap exposure in many portfolios while decreasing our overall allocation to large-cap developed international stocks,” said Smith. “And with currency valuations so much in flux, we felt like limiting risk on the international side was important right now.”

Building Core Positions, Trimming At Edges

Wiser has reduced exposure to the iShares S&P U.S. Preferred Stock Index (NYSEArca: PFF). The firm had started building positions in the ETF in early 2008. This year, it has gained some 30%.

“It has been a very volatile fund over the past year. In the worst part of last year’s financial crisis, PFF didn’t hold up as well as we thought it would,” said Smith. “We still hold it, but we’ve cut our allocations to PFF by almost two-thirds.”

The firm also decided to completely sell out of the iShares Dow Jones Select Dividend Index (NYSEArca: DVY). “We decided that it wasn’t necessary to overweight dividend-yielding funds. A harder look by our analyst staff showed we could create a portfolio with less volatility using more bonds and still reach our target yield of 5%,” said Smith.

Instead of relying on dividend-yielding funds quite so much, Wiser has decided to add to positions such as the SPDR S&P 500 (NYSEArca: SPY) and other core holdings. “Instead of dividing up our stock allocations among more specialized funds, we’re putting more emphasis on broader-based core holdings,” said Smith.

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