ETF Core Strategies
Aim: To trend-trade general equity ETFs so as to ride rallies and buck busts in the Australian share market.
If you are in an industry or retail superannuation fund you will have a choice of investment styles to choose from. Typically they have names such as Defensive (which usually has 20% to 40% exposure to shares), Balanced (which as the name suggests may be anywhere between 40% and 60% invested in shares) and Growth (which usually has a 60% to 80% share component). There are also more extreme options such as Ultra-Defensive (which has less than 20% shares) and Aggressive (normally 80% to 100% shares).
In each of these examples that portion of the fund not in local or foreign shares (including listed property trusts) is usually in cash management accounts, bank term deposits, bank bills, government and corporate bonds and other forms of fixed interest securities.
If you want to use market timing signals for a superannuation fund or an unlisted managed fund offering a choice of different asset allocations find out first the maximum time they will take to strike a price on their units after you have instructed them to switch from one of their investment options to another. If it’s no more than three days from the close of trading which triggered a signal change then you can use the Conservative timing strategy to inform your decisions.
Once satisfied that an unlisted fund can switch investment options quickly and at low cost our signals could be used as follows. Again talk to your fund or investment adviser before doing this because each fund is different and we don’t know your personal financial circumstances or the asset allocations of your managed funds.
When a sell signal for the Conservative strategy is issued switch from say the Balanced or Growth option within the super or managed fund to the Ultra-Defensive or Defensive option within that fund. Then when the signal later changes to Buy switch back to the Balanced or Growth option originally held.
A more refined approach would be to use the Conservative strategy to time only the Australian share component of a super or managed fund since the strategy is designed for the Australian share market not overseas ones, notwithstanding the positive correlation between movements in most share market indices globally.
Again this is not specific advice, just an example of what you could explore with your fund or an adviser familiar with your financial situation.