ETF’s and Dynamic Asset Allocation

Today, ETFs dominate conversations between financial advisors and their clients to a much greater extent than traditional mutual funds or individual stocks and bonds. That certainly was not true at the end of the 20th century. At its core an ETF (exchange-traded fund) is merely a mutual fund or trust that issues shares that trade on stock exchanges as if they were corporate stocks.

ETFs are great tools for both long-term strategic and dynamic tactical asset allocations. Beyond hedging risk with diversification, popular ETF categories include defined outcome (or “buffered”) ETFs that allow investors to limit annual losses, buy-write ETFs that provide income to buttress principal losses in equity downturns, and other hedging tools. In fact, the vastness of the selection set now available mirrors the speed with which ETFs have taken over from traditional redeem-at-distributor mutual funds as the dominant industry vehicles used by the clients of financial advisors and self-managing individual investors.

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Current Landscape

Focusing on the US, there are 4,873 ETFs as of June 30, 2026. The aggregate AUM was 15.7 trillion dollars. Breaking them down for the purpose of allocation discussions, the general categorization looks like this:

CATEGORY BRANDING FUND COUNT CORE DESIGN MATRIX / TYPICAL TICKERS
1. Indexed Equity (Pure Passive)

1,390

Market-cap core beta indices (VOO, IVV)
2. Smart Beta Indexed Equity

1,120

Rules-based index factor tilts (VUG, SCHD)
3. Active Equity (Discretionary & Systematic)

1,100

Stock-picking & factor-active (DFAC, CGDV)
4. Indexed Fixed Income

780

Passive bond aggregates & treasuries (AGG, XHLF)
5. Active Fixed Income

270

Duration-flexible & short-duration (MINT)
6. Indexed with Options Income

45

Rule-bound systematic index covered-calls (QYLD)
7. Active with Options Income

265

Dynamic equity-premium managers (JEPI)
8. Buffered and Defined Outcome ETFs

470

Prespecified downside shields (PJUL)
9. Leveraged ETFs (Index-linked)

145

Multi-day or daily 2x/3x indices (TQQQ) = Designed for Short-Term Trading Professionals – Others Should Avoid
10. Leveraged Single-Stock ETFs

115

Amplified single corporate shares (NVDL) -Designed for Short-Term Trading Professionals – Others Should Avoid
11. Target Date ETFs

12

Automated age-based asset glidepaths (IDTC)
12. Tactical Asset Allocation ETFs

95

Multi-asset flexible macro rotation frameworks (ALLW, DYTA)
13. Gold ETFs (Physical Trusts)

19

Grantor bullion vaults (GLD, GLDM)
14. General Commodity ETFs

82

Rolling multi-futures baskets & pools (USO)
15. Bitcoin / Spot Crypto ETFs

28

Spot spot-crypto trusts (IBIT, FBTC)
16. Other ETFs (misc. categories)

147

Niche wrappers, currencies, and real estate (VNQ, UUP)
TOTAL ACTIVE & PASSIVE US-LISTED VEHICLES

4,873

US ETF Universe

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ValuEngine’s Ratings and Perspective on Overall Allocations

From a dynamic asset allocation perspective this allows the user to differentiate in selection among different ETFs. Dynamic strategies within the equity allocation generally will take different forms. Size, growth vs. value, and industry sector groups are the most common factors used for rotation. The major ETF providers including StateStreet SPDRs, iShares by Blackrock, Vanguard and Invesco all provide ETFs that represent all the major categories.

Types of ETFs used within rotation strategies include:

  • Market cap distinctions – large-, mid-, small- and all-cap;
  • Growth vs. Value;
  • Industry Sector; Industry sub-sector, etc.
  • Weighting schemes – equal; market-cap; revenue; dividend; combined, etc.
  • Other “smart beta” factors – quality; volatility; momentum; etc.

At ValuEngine, we rate more than 600 US-listed Equity ETFs weekly. Generally, they are focused in the first two categories, but a handful of active equity ETFs and covered call ETFs are rated as well. The ratings combine top-down and bottom-up analysis by using the price action of the ETF during the past year along with the weighted ratings of the ETF’s component stocks. Once again, the ratings range from 1 to 5 where 1 indicates a strong sell and 5 indicates a strong buy with 3 as a hold. In the case of ETFs, they are divided into 5 equal groupings from highest forecast 1-year price change to lowest. These ratings are updated weekly and can provide useful information for tactical asset allocators.

Every week, we provide an updated newsletter and blog that provides tables of our latest ratings for a selected list of ETFs representing different size groups, industry groups and style groups along with strategic observations to provide insights on the direction of related trends. Click HERE for the most recent and historical issues of that weekly newsletter. Beyond that, we rate many ETFs that are run by dynamic allocators and active managers who attempt to increase returns by following such trends.

Our top five ETFs in terms of forecast return, all rated 5 (Strong Buy), are displayed here.

Ticker ETF Name One Year Forecast Return VE Rating AUM (Mil.) YTD Rtn Exp. Ratio
CTEF Castellan Targeted ETF

35.1%

5

677

35.70%

0.45%

PTF Invesco Dorsey Wright Technology Momentum ETF

20.3%

5

641

28.50%

0.60%

PTH Invesco Dorsey Wright Healthcare Momentum ETF

19.1%

5

241

21.40%

0.60%

SPMO SPDR S&P 500 Large Cap Pure Momentum

18.6%

5

2185

25.80%

0.11%

FOCS Pinnacle Concentrated Midcap Growth Focus

17.4%

5

58

12.40%

0.81%

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Brief descriptions –

CTEF – This active fund by Castellan Group blends quantitative screens with qualitative reviews to select individual equities. It strives to combines value and momentum attributes while avoiding value traps;

PTF – Uses relative strength ranking models from Dorsey Wright. Sophisticated and analyst-driven momentum rules track capex hardware spending;

PTH – Deploys a Small-Growth equity style using models from Dorsey Wright. It filters for high-velocity momentum across U.S. pharmaceutical, biotechnology, medical device, and healthcare services companies;

SPMO – Passively tracks the S&P 500 Momentum Index, utilizing a highly systematic, rules-based methodology to isolate exactly 100 large-cap stocks with the strongest upward relative price velocity.

FOCS – Runs a proprietary, high-turnover quantitative active model to select a concentrated basket of around 30 stocks.

20 years ago, there were no ETFs. No active manager had yet filed with the SEC for exemptive approval. Most believed that ETFs were strictly for indexed funds.

Why then have so many active strategies migrated to the ETF structure? ETFs have become such a cost-effective standard that for many mutual fund companies, they needed to migrate or die. Traditional mutual fund companies have been losing market share and relative growth in assets under management at alarming rates. The good news is that using the ETF structure should help level the playing field. As included in the ValuEngine reference section, ETFs are a much more efficient structure for active management than the antiquated traditional structure.

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www.ValuEngine.com (ValuEngine, Inc) is a stock valuation and forecasting service founded by Ivy League finance academics. VE utilizes the most advanced quantitative techniques and analysis available to analyze over 4,200 US stocks, 700 US ETFs, and 1,000 Canadian stocks. Fair market valuations, forecast target prices, and buy/hold/sell recommendations are updated DAILY.

www.ValuEngineCapital.com (ValuEngine Capital Management, LLC) is a Registered Investment Advisory firm that trades a variety of different portfolios based upon the ValuEngine.com research models. Each portfolio has a different risk/return profile, so clients can be placed in strategies that fit their specific investment needs.

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