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Have you Rebalanced your Portfolio Lately?

The four questions below are the most often asked questions from clients.

1). What are you seeing across markets and the economy?

  • There is significant concentration of technology risk within the S&P 500. Astoria strongly believes in tilting away from market cap by using factor/smart beta ETFs, as well as mixing factors, using higher quality bonds, and alternatives to soften our portfolio volatility. Not many wanted to own alternatives when the S&P 500 rallied 450% during the 2009-2019 bull market. We feel this will change now that we are in a recession. The key is to use alternatives which are inversely correlated to stocks.

  • In term of alternatives, we are strong proponents of owning gold and gold equities because 1) their opportunity costs are low 2) real rates are negative in many countries 3) gold has historically performed well in bear markets and 4) gold has historically lowered portfolio volatility.

  • Astoria is bullish on the stock market but bearish on the economy. Stocks are forward-looking and most economic data are backward-looking. Clients should expect a disconnect between the economy and the stock market. Historically, the risk/reward for buying stocks has shown to be favorable during recessions. Ironically, the stock market is one of the few instances where when things go on sale, people run for the exit (credit to whoever invented this phrase; it was not us). Astoria believes debating whether stocks have hit a bottom is irrelevant if the following conditions are satisfied: 1) valuations are attractive 2) you believe the market can’t be timed 3) the opportunity cost for owning stocks is low given the current interest rate environment and 4) you have a long-term time horizon.

  • Astoria believes the most important factor for near-term sentiment is how the open/closing of US states go and progress towards a vaccine. As more states open and the case count increases, it is likely the market will sell off. The stock market is looking for a reason to sell off (we’ve rallied too much, too many people missed the rally, earnings are not great, economic data are terrible, etc). Simply put, if there is progress towards a vaccine, the market will respond positively (as it has done this week).

2). What changes have you made this year and why?

While we are strategic and long-term in nature, Astoria has implemented the following portfolio construction tilts: 1) established a US min-vol position via USMV 2) increased our exposure to US equities at the expense of International Developed equities 3) increased our exposure to corporate bonds via LQD and QLTA and 4) increased our exposure to alternatives.

  • In equity, we increased our US overweight because we believe the US economy will rebound stronger than International Developed economies. We established a position in USMV because we believe valuations aren’t excessive given 0% interest rate environment. Moreover, it diversifies our factor exposure.

  • In fixed income, we sold out of our municipal bond position, trimmed our mortgage-backed security exposure, significantly increased our high-quality investment grade corporate exposure, and established a new position in TIPS (via VTIP) to protect against a potential rise in inflation attributed to the fiscal and monetary stimulus.

  • In alternatives, we increased our exposure to BTAL and GLDM to further soften our portfolio volatility. We also decreased our exposure to MNA. In short, merger arbitrage is economically sensitive, and we are more constructive on long/short market neutral and gold.

3). What are the opportunities and challenges as you look at the rest of 2020?

To be clear, Astoria does not invest based on short-term COVID case count or sentiment towards a vaccine. We believe investors should take advantage of any declines in valuations to purchase high quality stocks, dividend growers, and companies with strong balance sheets that can grow their earnings in a recessionary environment. Most importantly, we advocate hedging portfolio risk via alternatives and higher quality bonds. We would expect min volatility ETFs and higher quality ETFs to hold up well on a relative basis if the current macro-economic and earnings environment stays weak. Higher volatility factor strategies like value and size could suffer on a relative basis.


  • On the back of client demand, we have used our quantitative portfolio construction discipline to create a High Quality Growth US Stock Portfolio (30 stocks equal weighted). As our followers know, we have tilted our ETF portfolios to high quality stocks for the better part of 2 years. We simply believe companies with the cleanest balance sheets and the ability to grow their earnings can offer a superior risk/reward in the next 12-18 months.

Other Opportunities

  • US large-cap equities > International Developed equities

  • Investment grade corporate bonds

  • Emerging Market equities, China in particular

  • Alternatives (gold, gold equities, and long-short market neutral in particular)

  • Health Care: Technology stocks have been the market leaders and a staple in investors’ portfolios throughout the 2009-2019 bull market. But because capital is ultimately allocated looking for the highest return per unit of risk, it’s hard to imagine that Technology will lead the market again in the next decade. Everyone is wondering what needs to happen for life to get back a sense of normalcy. It’s pretty obvious – we need a vaccine and or a treatment, and neither will come from a technology company. See our CNBC Pro write up (click here).


  • We are at the lower bound of the interest rate environment.

  • The unemployment rate will likely continue to rise.

  • Companies’ earnings are projected to be significantly lower for the next 1-2 quarters.

  • We will likely see a rise in high yield default rates.

  • High yield spreads are predicted to remain elevated.

  • There is talk of reduced share buybacks in the future (they were a dominant buyer for stocks over the past decade).

  • We are likely to see a material weakness in the commercial real estate sector.

  • Some investors and businesses may be forced to de-lever because of the pandemic.

  • T-bills are currently negative.

Just remember stocks have priced in a lot of the bad news. Where the S&P 500 ends up in 1, 3, 6, or 12 months is anyone’s guess. Astoria Portfolio Advisors will stick with our long-term investing focus, remain quantitative and systematic with our portfolio management, and remove the human emotion out of investing.

4). What models do you offer that implement the views mentioned above?

Three models are in focus for Astoria:

  • Multi-Asset Risk Strategy (MARS)

  • Enhanced Income Model

  • High Quality Growth US Stock Model

  1. Our Multi-Asset Risk Strategy (MARS) which is benchmarked to a 50%/30%/20% NDUEACWF/LEGATRUU/WLIQAMST (refer to our website here for more information about our models and their performance). MARS has a greater allocation to alternatives as well as higher active risk compared to our standard Dynamic Models.

  2. We developed a new Enhanced Income Model which is made up of about 20% equities and 80% fixed income. It targets a 4% dividend yield (i.e. double that of AGG ETF) and aims to maintain comparable risk (standard deviation) and duration levels. We roll slightly out of the money (2% above) call options on IEFA, SPY, and IEMG to provide additional income and further soften portfolio volatility.

  3. As mentioned, we developed a High Quality Growth US Stock Portfolio which uses a quantitative and systematic portfolio construction approach. There is no active stock picking, and we target 30 stocks that have relatively attractive balance sheet and growth prospects. The model uses an equal-weighted allocation approach across all holdings and the constituents are rebalanced annually. Quality is a factor which historically has demonstrated attractive risk/return characteristics compared to the overall market.

Refer to our website for more information on our models, research, and historical model performance. Best,

Nick Cerbone

Astoria Portfolio Advisors Disclosure: As of the time of this writing, Astoria held positions in the above referenced ETFs (AGG, SPAB, BND, LQD, QLTA, VTIP, IEFA, SPY, IEMG, USMV, SPLV, BTAL, MNA, GLDM, GLD, IAU, GDX, and SGDM) across a variety of our ETF model portfolios. Note that this is not an exhaustive list of our ETF holdings across either Astoria’s dynamic or strategic ETF portfolios. Our holdings will vary depending on risk tolerances, tracking error bands, and client mandates. For full disclosure, please refer to our website.


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