X-raying ETFs

We look-through (or “X-ray”) an ETF to examine its underlying portfolio of constituents instead of treating an ETF like a single security. This more sophisticated method for choosing ETFs allows for a total portfolio view of risk and exposures.

We dissect and analyze ETF holdings using state-of-the-art 3rd party risk analysis tools.

X-raying ETFs is critical in understanding the risk of an ETF-based portfolio. It seems naïve not to treat ETFs as portfolios and ETF portfolios as portfolios of portfolios.

RBA is one of the largest and fastest growing ETF model managers in the United States1 . Investors are increasingly accepting the use of ETFs and now realize asset allocation decisions have a greater influence on returns compared with stock selection in a low concentration portfolio.

RBA is a macro firm, but unlike other macro firms we are not event-driven and have longer investment time horizons. We translate our fundamental macro views into our Pactive® strategies. The term “Pactive®” refers to an actively managed portfolio that invests in passive instruments. RBA is a unique investment manager because we combine fundamentals with a mix of active AND passive strategies.

What we mean:
X-raying ETFs means treating an ETF like a portfolio. We look at an ETF’s underlying constituents rather than invest in an ETF as a single security. For example, the largest ETF with S&P 500® exposure is SPY US (SPDR® S&P 500 ETF TRUST). Most investors treat SPY like a single security, but RBA considers the interactions by all 506 constituents (500 companies plus cash). Rather than paint with a roller, we’re able to use a finer brush to more accurately target exposures within our portfolios. Understanding how the risks embedded into an ETF could impact our overall strategy guides RBA to select the most appropriate ETF.

How we do it:
ETF issuers publish their holdings daily and RBA examines an ETF’s individual components using state-of-the-art 3rd party tools. We look-through (or “X-ray”) the parent level of an ETF to shape and mold our desired solution just as a studio artist might sculpt pottery from a piece of clay.