The task of identifying ETF securities that are likely to produce attractive investment returns in the future is an exceedingly difficult undertaking requiring a rigorous combination of quantitative and highly thoughtful qualitative evaluation. Making this effort even more complex for Advisors is the sheer number of new ETF offerings in the marketplace that invest according to an increasingly diverse range of active, passive, strategic, tactical, inverse, leveraged, and/or factor specific style tilts.
The HWCP Approach
HWCP believes that proper ETF analysis must go beyond assessing the more naïvely derived characteristics such as index tracking error, style adherence, fee structure, cost level, and trading liquidity availability. While it is important to have a handle on all these differentiating metrics, a more fully developed qualitative and quantitative understanding is required for investors to truly appreciate the embedded risks and potential rewards of a particular ETF offering in the marketplace.
HWCP focuses its ETF Analytics efforts along the following quantitative and qualitative areas of investigation:
1. Returns-based analyses
2. Holdings-based analyses
3. Philosophy of ETF index construction
4. ETF valuation analyses (“look through”)
5. Efficacy/Relevance of ETF investment strategy
HWCP strongly believes that it is critically important for those purporting to provide ETF analytics to have a history of successfully investing assets across multiple investment styles, strategies, economic environments, and diverging market cycles. There is simply no substitute for the knowledge, judgment, and healthy regard for risk that can only be acquired through many years of practical investment management experience.
To populate the recommended portfolio constructions corresponding to the three risk-targeted Investor Profiles described elsewhere, HWCP will utilize the multi-decade experience of its Founder/Managing Member to identify, compile, and make available to Advisor consulting clients a Recommended List of ETFs operating within each asset class and sub-investment style that are deemed to be the most attractive candidates for ownership consideration. The HWCP Recommended List of ETFs will be published on a quarterly basis.
The HWCP Recommended List of ETFs should not be considered merely an “All Star” team of recently top performing securities selected in a vacuum, as other investment advisory services typically provide. The ETFs on the HWCP Recommended List are selected specifically for their potential to generate best-in-class levels of risk adjusted investment return on a prospective basis within their specific asset class/style category regardless of the overall market environment, while at all times protecting against forced exposure to naive style factors that is unfortunately so prevalent across the investment management industry today.