RIA Forlines: Getting Tactical With ETFs
May 09, 2012
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With the bond market offering lackluster returns and equities on a roller-coaster ride, tactical global allocation strategies have been attracting increasing investor attention. Now large ETF firms such as iShares and SSgA have either recently released tactical, allocation strategy ETFs or have such funds in the works.
John Forlines, head of New York-based registered investment advisor JA Forlines Global, disregards models and focuses instead on global-macro research to build portfolios solely comprising ETFs. Forlines, who manages about $400 million, sells exclusively to registered investment advisors and to broker-dealers for fees ranging from 40-80 basis points depending on the type of platform.
Last week, on the heels of SSgA's launch of its first tactical allocation funds, IndexUniverse Correspondent Alex Ulam interviewed Forlines about his views on a niche of the market that promises equitylike returns with bondlike safety.
Ulam: SSgA just launched several active tactical allocation funds; are they similar to what you do?
Forlines: You could say these are competitive products. But that's not the way we look at it. It's a big market.
Ulam: Why aren't there more tactical allocation ETFs?
Forlines: They are really hard to do; that's why they haven't been done much.
You need a really big team to do this. Just look at simple ETF creations for fixed-income products—that's probably the most difficult right now. You've got portfolio managers who are trying to figure in real time whether or not they're priced correctly. So, you even have more problems when you have a multi-asset portfolio.
Ulam: How does your model differ from what SSgA does?
Forlines: The best model is a benchmark-free, band-free model. Our flagship model is 0-70 percent equity; 0-100 percent fixed income; and 0-100 percent cash. And the only place we band it, really, is on the alternative side, where we're 0-30.
We don't want to be pigeon-holed. In the middle part of the last decade, you might say we looked like an emerging-markets-in-energy play—primarily in equities. But now we're much more focused on the idea that we're looking for some security and some capital preservation, and we're looking for it at a good price. Six months from now, I might have a different outlook.
Ulam: Why do you depend more on research than adhering to models in your investment strategies?
Forlines: We're kind of old-fashioned in that sense. We think that top-down macro bets, which are becoming more and more important in this sector environment, are far easier to execute using index products rather than trying to find, say, the three best technology stocks in the world.
Ulam: So in some sense, you're more active than a lot of the other active managers who are using models?
Forlines: The way we look at it is that all the best macro data sets are monthly. I couldn't tell you what the 250-day moving average of our ETF holdings are. But I can tell you what rates are in Brazil and China. And I can tell you a lot about some of the stuff that really does matter in terms of statistical analysis relative to credit and systemic risk.