Byron Wien, vice chairman of Blackstone was on CNBC the other day talking about his idea for a "radical" asset allocation strategy for 2011. Wien has a very long-term and well-respected track record on Wall Street and anyone wanting to implement his radical strategy could do so with exchange-traded products.
Wien advocates 20% into emerging-market equities. This space has, of course, been very popular over the last few years as returns going into the financial crisis were superior to domestic benchmarks and many emerging-market countries have seen faster recoveries than developed markets. I would avoid broad-based funds like iShares MSCI Emerging Market Index Fund (EEM) or the Vanguard Emerging Market Index Fund (VWO) because they take in the good and the bad while at the same time blending away various positive attributes that many of these markets have.
Investors have countless narrower funds to build a very customized exposure. Among the types of choices available with easily understood longer-term catalysts for growth are the EG Shares INDXX India Infrastructure Fund (INXX), the Global X Brazil Consumer Sector ETF (BRAQ) or the iShares MSCI Turkey Index Fund (TUR). A combination of specialized funds would be better than one of the broad-based funds.
Wien also believes that high-yield bonds, targeted at 20%, are attractive. There are two very popular ETFs with the SPDR Barclays Capital High Yield Bond Fund (JNK) and the iShares iBoxx High Yield Corp Bond Fund (HYG). Recently there has been a new actively managed fund in the space with the Advisor Shares Peritus High Yield ETF (HYLD).JNK has a trailing yield of 8.48%, HYG has a trailing yield 8.39% and the Peritus fund is too new to have any yield information. One other possibility is the SPDR Barclays Capital Convertible Securities ETF (CWB). While the 3.11% trailing yield is less than the others, it does capture price appreciation when this group is in favor. One important note is that with bond ETFs the trailing yield doesn't necessarily give any reliable indication of what to expect. Changes in the bond market will be quickly reflected in these ETFs. Hedge funds also feature prominently Wien's allocation. While there are plenty of exchange-traded-products that replicate hedge fund strategies, investors need to realize that the emphasis here is on the word "hedge" and none of these funds will be up 300% one year because they shorted subprime mortgages or some other equally heroic trade in the future.