What has been the most notable performer in 2017 in your Tactical Income portfolio, and to what do you attribute its gains?
CLY, the iShares 10+ Year Credit Bond ETF, was certainly among the top performing positions in our Tactical Income portfolio this year. The security was up 12.1% and we currently hold about a 15% position in our portfolio. With the U.S. economy remaining fundamentally strong, the default rate of corporate bonds is relatively low. Our ETF scoring model showed an attractive aggregate for CLY throughout the year with valuations and sentiment signals being the strongest contributors. Exposure to global infrastructure from IGF (iShares Global Infrastructure ETF) was another noteworthy holding in 2017. As investors anticipated pro-growth policies and more infrastructure spending in the U.S., IGF climbed throughout 2017, finishing the year +19%.
What drove the additional allocation to U.S. equities in the growth portfolios and how do you like the asset class heading into 2018?
We increased exposure to IVV (iShares Core S&P 500 ETF) as our model indicated a relatively bullish outlook for the U.S. equity market with stronger sentiment and macroeconomic signals. Leading sentiment indicators climbed or stayed at high levels in 2017 and producer sentiment recently strengthened. The ISM manufacturing index remained solid the last three months driven by the belief that the U.S. manufacturing conditions are improving as the global economy has strengthened and the U.S. dollar has depreciated. The homebuilder sentiment index also climbed steadily this quarter hitting 74 in December, the highest level since July 1999, indicating that the housing market is well positioned for growth in the coming months. Macroeconomic data became more bullish with the labor market continuing to tighten. Weekly initial jobless claims fell four consecutive weeks in late November and early December while industrial production posted steady gains for the last three months of the year. We remain cautiously optimistic heading into 2018, seeing both strong growth indications as well as some cautious signals. The steady pace of economic growth is likely to be among the most significant drivers for the domestic equity market going forward.
With the tightening labor market, wage growth, and surging stock and housing prices, consumers were one of the strongest sources of growth and will be looked upon to continue driving the economy moving forward. However, with the winding down of quantitative easing and possibly higher interest rates, risks remain for U.S. equity prices. We monitor these risks daily, especially as stock market valuations remain stretched. We have a similar rational for mid-cap equities in IJH (iShares Core S&P Mid-Cap ETF) as we have for IVV, being cautiously optimistic about the U.S. equity market throughout 2017 and moving into 2018.
What factors led to the trimming of Canadian equities?
We trimmed EWC (iShares MSCI Canada ETF) in October as macroeconomic data in Canada turned downward. GDP growth rapidly decelerated in the third quarter, slowing from an annualized rate of 4.3% to 1.7% as diminishing demand for exports offset an increase in domestic demand. The housing market in Canada was also hurt by the tightening of monetary policy and higher interest rates.
What appealed to you about emerging markets that has led to an increased allocation to the position?
Emerging market equities were among 2017’s top gaining asset classes. Our model indicated a high score for IEMG (iShares Core MSCI Emerging Markets ETF) led by its macro and sentiment components, which are among the highest compared to other international equity ETFs. Manufacturers and exporters in many Asian markets received a boost recently, benefiting from the upswing in the global tech cycle. As a result, manufacturing sentiment improved. Macroeconomic signals also increased in recent months, particularly leading economic indicators and retail sales.
What themes will you be focusing on in 2018 when you consider your Eurozone positions? 
Our outlook for EZU (iShares MSCI Eurozone ETF) remains optimistic. The relatively strong economic growth was among the major drivers of the impressive performance of EZU for the year. The bullish sentiment signals such as the PMI signals also suggested that Eurozone industrial sectors are firing on all cylinders. The highly accommodative monetary policy from the European Central Bank (ECB) certainly contributed to the market rally this year. Going forward, we will continue to focus on the outlook of Eurozone economic fundamentals, the sentiment of the market and ECB’s monetary policy. Unlike the Federal Reserve, we expect the ECB to keep a more accommodative stance in the near future if the Eurozone inflation continues to be below-target.