Andrew Gogerty: Tools used by tactical ETFs Strategists. Hi, I'm Andy Gogerty from Morningstar, and we're here today at the 2012 ETF Invest Conference. Tactical strategies are garnering a lot of interest from both advisors and institutions, and to talk about some of the trends in this space is Sharon Snow, the CEO of Metropolitan Capital Strategies. Sharon, thank you for joining me today.
Sharon Snow: Thank you so much for having me.
Gogerty: So, ETF strategies. It's very technical, there is a lot of macro analysis, but there is a lot of fundamental inputs that are driven off data, because you're not analyzing 5,000 stocks, building DCF models, you're looking at the market and asset classes, some of the inputs, momentum, moving average, and relative strength. What does Metropolitan Capital use in finding the best opportunities in the ETF market?
Snow: Metropolitan is different from a lot of tactical strategies. We use all three types of analysis. We use technical, fundamental, and economic analysis. Our core technical indicators are really quite simple. We're using the normal 200-day average, 50-day average, the MACD, the relative strength and the volume. But what we really do is if we're looking at equities, we're looking at the fundamentals first. We’re looking at revenue and earnings. We want to see decent growth because you're paying for that. That's what you're getting as an investor, and we put it in the context of the economic environment. So, one of the cores of our strategy is that we can go to any asset class at any point in time, that we can get a double-digit return with a very high confidence. So, the economic indicators help us look at the bond market, help us look at precious metals and commodities, and put everything on an even playing field.
Gogerty: It's seems like you are using that technical analysis that gives you the ability to judge sentiment across asset classes without employing a staff of 300 specialists across all the same classes?
Snow: That's correct, and really with the technical analysis, we're looking for confirmation. We're looking for that U to occur and that asset class to be on a strong rise. So, we've used the technicals really for our buying and then our selling.
Gogerty: You talked about the ability to go anywhere and that kind of leads to the tactical label that a lot of strategists have, including yourself. What do you think in the last two or three years is driving that interest from not only advisors, but also for institutions, small pensions, and endowments to add some of that type of exposure to their overall portfolio?
Snow: First and foremost what they had been doing did not work. And not to be trite, but you have to do it a different way and the past 13 years, really it's been a no-return trip for the investor. Metropolitan thinks of ourselves as guardians of our clients’ wealth. So, you've already made the money or if you an institution you have the money, you need to keep that money. And we like 100% protection on the downside. But we want to a get a robust return, a double-digit return, if we invest our capital. And our own capital is riding along with the clients, so we don't like to see our own money go down 10%, 20%, or 40%. Why would we want our clients’ money to do that? We think that everyone needs to rethink investing.
Gogerty: One of the things that is in your portfolio that might be a little bit different from some peers is, not only are you tactical, but you will use both leveraged ETFs and also options to help generate that return, while also protect on the downside. What are some of the opportunities that you're seeing in the market today or areas that are attractive that you would express an asset-class exposure to right now?
Snow: Right now we're still cautious, but we’re about half way through or perhaps more through this recovery. We've already got a hard return on what the Fed is going to do. They are going to QE unlimited, so basically they're putting a floor in the market. So, we're looking for many opportunities. We see a round trip in the domestic-equity market using the broad based ETFs like the SPY and technology. We see a lot of possibilities in the emerging markets, especially China, which is one of the few economies that are going to see close to double-digit GDP growth.
One of our largest plays in the future could be the inverse bond play. Let's face it, yields have to go up; return has to go up in the bond market. And with that, the bonds will decrease in price, and that could be a huge inverse ETF play. Really the leverage does not increase the risk. We are risk managers. First and foremost we're keeping the capital. Second, when we're convicted, the leverage just allows us to get extra profit in a shorter period of time. As far as the options, options are a very small part of our portfolio, and we're writing options on broad-based ETFs, really short term. And we're just writers bringing in premium.
Gogerty: Great. Thank you for your perspective today and also your time. We appreciate it.
Snow: Great. Thank you, Andy.
Gogerty: This has been Andrew Gogerty for Morningstar, and Sharon Snow for Metropolitan Capital. Thank you for joining us.