Astoria's ETF Portfolio Adjustments
Over the past year, we have made significant adjustments to our ETF Model Portfolios, strategically doubling the portfolio’s duration, diversifying away from the 'Magnificent 7', expanding our footprint into international high quality stocks, and tweaking our alternatives as we prepare for the pending recession. This strategic shift reflects the firm’s dynamic approach to current and future market trends.
Astoria Portfolio Advisors was featured on Bloomberg’s ETF IQ show at the beginning of the year, presenting our top 10 ETFs for 2023 and the visionary “T Bill and Chill” concept.
We discussed that one of our top ideas was to buy short-dated T-Bills. This idea preceded the market trends, reflecting the team’s ability to spot emerging opportunities.
With a huge accumulation of concentration risk in the market cap-weighted approach, Astoria has reduced its exposure to Semi/AI stocks and employed equal-weighted strategies, strongly promoting the diversification scheme across our portfolios while moving away from the concentration risk in US large-cap indices.
We are adopting the following barbell strategy:
Real assets and commodities (inflation sensitive) to hedge against sustained inflation (PPI, GLTR, GCC, GLDM).
Long-duration bonds as a safeguard against potential recessions and taking advantage of the rising long-term US bond yield (SPTL).
International ETFs for tactical tilts (HEDJ, IEUR, DXJ, EWJ).
High Quality US assets that pay dividends or have strong positive earnings (DGRW) and Growth at a Reasonable Price Strategies (SPGP).
Insights from ETF Flows
The prevailing trend in ETF flows points toward an embrace of defensive trades:
Inflows (YTD): Substantial inflows into ETFs like:
JEPI: +$15 billion inflows
QUAL: +$9 billion inflows
RSP: +$7 billion inflows (by pivoting away from large-cap scope and reduction in exposure to AI, semiconductor, and tech stocks).
Outflows (YTD):
ESGU: -$9 billion outflow as the market stopped buying into the ESG narrative.
IWD: -$6 billion outflow due to elevated EPS recession risks in the US. Historically, growth stocks have demonstrated more resilience during profit recessions compared to value stocks.
Dividends ETFs are witnessing outflows. This is linked to the risk of holding dividend-paying assets when Federal Funds rates offer a risk-free rate of 5.5%.
Fed Funds rates currently stand at 3x the dividend yield of the SPY (S&P 500 ETF), placing dividend payers against a serious headwind.
Preparation for the Next Recession
With the drastic changes in the yield curve, indications of an impending recession have surfaced. The 20-year Treasury curve has seen a notable decrease in value, with TLT down by 40% since 2022, suggesting a significant shift in the bond market.
The real estate housing market is seeing seismic shifts, with 30-year mortgage rates hovering around 8%.
These are the suggestions to hedge against upcoming turbulence:
We suggest holding more cash (BIL, XTWO).
While longer duration Treasurys are currently not trading well, we do think they will outperform when the eventual recession hits (SPTI and SPTL).
Alternative investment ETFs (such as BTAL and GLDM) have historically provided inverse correlation during times of excessive stress.
Head towards owning real assets and investments in inflation-mitigating assets (PPI).
Diversifying your portfolio from pure market beta:
Tactical tilts into Growth At a Reasonable Price (GARP) strategy (SPGP)
Gradual move into international markets with a focus on international developed markets (HEDJ, IHDG, IEUR, DXJ, …) while having some exposure to emerging markets with active management due to the subtleties of these markets (DGRE).
Astoria's ETF Spotlight
Based on our Macro and Quantitative screening, the Japanese and European ETFs below are quantitatively and fundamentally attractive.
These regions have exhibited an uptick in EPS momentum, with favorable estimate revisions and more affordable valuations relative to the US market. Moreover, Europe and Japan are further behind the inflation and interest rate cycle.
For more on how we are navigating the current cycle, watch our Bloomberg ETF IQ interview. I speak at the 8-minute mark.
Best,
John Davi
Follow us on Twitter @AstoriaAdvisors
Warranties & Disclaimers
As of the time of this publication, Astoria Portfolio Advisors held positions in SGLTR, GLDM, SPTL, HEDJ, IEUR, DXJ, EWJ, DGRW, SPGP, JEPI, QUAL, RSP, TLT, BIL, XTWO, SPRI, and BTAL on behalf of its clients. There are no warranties implied. Past performance is not indicative of future results. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. The returns in this report are based on data from frequently used indices and ETFs. This information contained herein has been prepared by Astoria Portfolio Advisors LLC on the basis of publicly available information, internally developed data, and other third-party sources believed to be reliable. Astoria Portfolio Advisors LLC has not sought to independently verify information obtained from public and third-party sources and makes no representations or warranties as to the accuracy, completeness, or reliability of such information. Astoria Portfolio Advisors LLC is a registered investment adviser located in New York. Astoria Portfolio Advisors LLC may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.
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Please note that Astoria Portfolio Advisors serves as a sub-advisor to the AXS Astoria Inflation Sensitive ETF (PPI). Astoria Portfolio Advisors owns PPI on behalf of our clients. Please consult your financial advisor and review the prospectus to evaluate your suitability and investment risk tolerance before purchasing the $PPI ETF.