ice-hockey-shot

There’s a lot of choice for defence. Mid-term and laddered options are versatile and broad-based bond ETFs can anchor the blue line. Short-target maturity ETFs like RBC Target 2017 (RQE) and short-term index-based ETFs could act like a hard-checking defence that minimizes risk around the net.

Green light

When playing opportunistically — low volatility, upward trending stock market, and a positive economic backdrop — coaches may favour an aggressive structure (see “Aggressive 2-1-2,” below) with two penetrating forwards on forecheck, supported by a forward and a rushing pair on defence. This tactic makes best use of goal-scoring skills and was favoured by Scotty Bowman with the Habs in the 1970s and Mike Babcock with the current Red Wings. (Ironically, Lemaire played on many Bowman teams!)

Attacking forwards can include aggressive ETFs for broad scoring punch, including emerging markets, growth, and small-cap strategies — think Guy Lafleur and Evgeni Malkin.

Aggressive 2-1-2: Portfolio Strategy B

Attacking forwards Supporting forwards Defencemen
Vanguard MSCI Emerging Markets (VEE) Powershares QQQ (QQC) Claymore Advantaged High-Yield Bond (CHB)
iShares Dow Jones Canada Select Growth (XCG) iShares NASDAQ 100 (XQQ) iShares US High-Yield Bond (XHY)
iShares S&P/TSX Small-Cap (XCS) iShares Russell 2000 (XSU) Powershares Fundamental High-Yield Corporate (PFH)
Claymore BRIC (CBQ) BMO NASDAQ 100 (ZQQ) BMO High-Yield Corporate Bond (ZHY)
BMO Emerging Markets (ZEM)   Claymore Advantaged Convertible Bond (CVD)
Claymore Broad Emerging Markets (CWO)   Convertible Bond XTF (CXF)
Horizons North American Growth (HAW)   iShares JP Morgan Emerging Markets Bond (XEB)

More concentrated exposure from country, region or industry-specific ETFs is also possible, like BMO Junior Oil (ZJO), BMO Junior Gas (ZJN), iShares Latin America (XLA), Claymore China (CHI), iShares MSCI Brazil (XBZ), iShares S&P CNX Nifty India (XID).

Broadly based exposure to technology-rich NASDAQ or Russell 2000 ETFs offers good support. Rushing defencemen with offensive potential like Bobby Orr, or currently Drew Doughty (Kings) and Kris Letang (Penguins), include high-yield and convertible bond funds (see “Defend Your Portfolio,” below).

Defend your portfolio

Defend your portfolio

Long-term corporate bond funds may be good for a quick shift if you expect corporate-government yield spreads to narrow — iShares IG Corporate Bond (XIG), BMO Long Corporate Bond (ZLC), Horizons Corporate Bond (HAB) and any of the longer-dated target bond funds RBC Target 2020 or 2019 (RQH, RQG), BMO 2020 or 2025 Corporate Bond (ZXC, ZXD).

This is clearly an aggressive lineup with obvious risks. If the market turns nasty, the portfolio is vulnerable and may be caught “up ice.” The only stopper is the goaltender (cash and cash equivalents). Nimbleness is required to shift sufficient assets to cash if this occurs.

Puck control

Controlling the puck is important, but not always possible. Similarly, controlling portfolio risk is essential, but sometimes the market dominates — usually on the downside. Having specific tactics for different market environments can be an effective way to respond.

Thanks to Dr. Jim Sugiyama, hockey savant, for his valuable contribution to this article.

Mark Yamada is President of PÜR Investing Inc., a software development firm. Disclosure: PÜR Investing Inc. provides risk-based model portfolios to Horizons ETFs.

Originally published in Advisor's Edge Report