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The investment chief of a $14 billion wealth management firm designed an optimized portfolio of 8 ETFs that will help investors profit from stock market bargains while defending against soaring prices ripe for a sell-off

  • John Allen is the chief investment officer for Aspiriant, a firm that manages $14 billion in wealth.
  • He expects minimal returns from US stocks and bonds over the next few years. 
  • He devised an eight-piece portfolio to provide upside, versatility, and protection. 

Even investors who are deeply bearish on stocks concede there’s money to be made in the market today by people who make the right calls.

John Allen, the chief investment officer of the wealth-management firm Aspiriant, told Insider a year ago that US stocks were seriously overpriced. Now, they’re significantly more expensive than they were. That’s one of the reasons Allen thinks a traditional 60-40 portfolio will return little or nothing for the next few years.

“In order to generate reasonable returns, an investor more than probably any time in our professional careers has to be willing and able to hold a portfolio that’s substantially different than the market,” he said in an exclusive interview with Insider. “The exposures we hold are dramatically different than our passive benchmarks.”

Since he thinks the opportunities in stocks and bonds are limited, he’s also investing more money in private real estate and infrastructure.

Last May, Allen sketched out an all-ETF portfolio that would serve investors well in most markets while providing more diversification and, he argued, greater potential gains than a more traditional approach. Noting that that portfolio would have roughly kept pace with the market since then, he offered a few updates and new wrinkles.

(1) Stocks — 50%

Allen still suggests keeping half of this simple portfolio in stocks, but his recommended allocations have changed in some significant ways. He says he’s emphasizing the concept of “core defensiveness” and stocks with defensive qualities.

“We’ve emphasized equities which are companies that have high profitability, stable profitability, and they accomplish those two things with low leverage,” he said. “We have significantly more in … Europe, Japan, and emerging countries. We have significantly more in value versus growth.”

Compared to his seven-piece portfolio of last year, Allen says investors should add exposure to lower-cost emerging markets stocks and dial back their allocations to low-volatility and global stocks to maintain the size of the 50% stock component.

That means the stock portfolio has four components instead of three. Allen recommends a 20% allocation to a quality stock fund like the iShares MSCI USA Quality Factor ETF, and 10% each in a minimum-volatility fund like the iShares Edge MSCI Min Vol Global ETF and a broad global ETF such as the iShares MSCI ACWI ETF.

The new piece is a 10% allocation to emerging markets equities through a fund like the iShares Core MSCI Emerging Markets ETF. He notes that this fund has almost two-thirds of its investments in China, Taiwan, and South Korea, some of the strongest emerging markets economies.

(2) Municipal bonds — 15%

Allen still believes that a municipal bond fund like the iShares National Muni Bond ETF serves a role in portfolios, but his firm thinks that returns from traditional fixed income will be “plus or minus 1%” over the next few years because, like stocks, they’re unreasonably expensive.

The fact that many municipal bonds are tax-free is an important edge, and that’s contributed to their recent popularity.

(3) Liquid alternatives — 35%

Allen recommends shifting money out of bonds and into alternatives because they can offer more upside and aren’t as correlated with the performance of the stock or bond markets.

“We’re seeking opportunity in some inflationary, hedged positions. Specific areas of private real estate, specific areas of commodities and notably gold and other inflationary protection vehicles,” he said.

The specific shift here involves putting more into a fund like the iShares Gold Trust, which owns physical gold and can help hedge this portfolio against inflation. That gets a 15% stake, while 10% each goes into a hedge-fund tracker like the IQ Hedge Multi-Strategy Tracker ETF and the iShares Core Moderate Allocation ETF, which replicates funds that maintain a medium amount of risk.

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