A One-Stop ETF For Asset Allocation Strategies

Global equity markets have stumbled to start 2016, placing a great premium on asset allocation for advisors and investors. Some exchange-traded funds aim to ameliorate the asset allocation issue, but are limited to doing so at the sector level.

ETFs that have the ability to navigate investors into sturdy sectors and away from those groups are flailing are certainly useful, and some of these funds have proven undoubtedly successful. However, investors can get more. More exposure to more assets, that is, with the SPDR SSGA Global Allocation ETF (SSGA Actice ETF Trust GAL).

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A Closer Look At GAL

The $182.7 million SPDR SSGA Global Allocation ETF, which turns four in late April, is an ETF of ETFs, meaning 17 of its 18 holdings are all other ETFs.

“Sector rotation strategies can help investors align investments with their market outlook and position a portfolio to get more from the core. These strategies can take many forms. For instance, in a top-down approach, an investor can underweight or overweight a sector based on market and macroeconomic views such as rising rates or a resilient consumer. Using a bottom-up approach, an investor can underweight or overweight based on a sector’s fundamentals or momentum characteristics,” said State Street Global Advisors (SSgA) Vice President David Mazza in a recent note.

An important element to GAL's methodology is that it the ETF is not required to be fully invested in stocks or bonds at all times. At the moment, nearly 17 percent of GAL's weight is allocated to cash. Over the past month, GAL is down 6.5 percent, while the MSCI All Country World Index is down 9.3 percent over the same period.

GAL's largest holdings include the SPDR S&P 500 ETF Trust SPY, WisdomTree Inter Hedged Eq Fund HEDJ, Health Care SPDR (ETF) XLV and the SPDR Barclays Capitl Intrmdt Trm Trs ETF ITE. GAL's other sector exposures include consumer discretionary and technology.

“In this current market environment, roughly half of the US large-cap portion of GAL is invested in a traditional US large-cap core exposure via the SPDR S&P 500 ETF. The remainder of the US large-cap exposure is allocated equally, using a sector rotation model across three sectors we favor based on their outlook from a valuation, momentum and sentiment perspective,” added Mazza.

Nearly 23 percent of GAL's current lineup is allocated to bonds. Though GAL appears to have some of the advantages of an actively managed product, it is a passively managed fund with a reasonable annual fee of 0.35 percent, which is low compared to some sector allocation ETFs.

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