Through the RBC Wealth Management Portfolio Focus program, our New York group is responsible for managing the global exchange traded fund (ETF) strategy. The global ETF strategy invests primarily in ETFs representing indexes of various industry sectors, countries, regions, styles (e.g. Value, Growth), market capitalizations and non-equity investments such as gold, natural resources, cash and shorts.
The investment process begins with a regular assessment of global economic conditions, including domestic and international trends in factors such as GDP, inflation, unemployment, foreign exchange rates, interest rates, energy prices and the political environment. The purpose of this assessment is first, to identify broad investment opportunities within the US and abroad, and second, to identify major potential market risk factors.
The second step in the process is to attempt to identify those investment opportunities that do not appear to be fully priced on a probability-weighted basis. We believe that these opportunities can have an asymmetric upside potential. This step may also lead to a contrarian bias in the portfolio.
The third step is to manage the allocation of positions. Diversification is considered with respect to the underlying factors (GDP, inflation, foreign exchange, etc.) as opposed to the more conventional measures of region and industry. Management of these underlying factors is the primary means of risk management.
Our sell discipline is conscious of conventional measures such as average P/Es but tends to be more sensitive to macro-economic developments. For example, changes in the long-term growth prospects of a region or industry, levels of volatility in the quities, foreign exchange and the yield curve, as well as changes in the political environment may influence buy-sell decisions. The portfolios may from time to time include substantial cash positions.
