Portrait of an ETF Strategist
With a deep knowledge of the ETF universe, Bergman,
52, a Queens, New York, native, knows just how to make
the most of these funds’ potential for boosted performance
and better client outcomes.
So expert is Bergman that he’s the go-to guy for many
other investment professionals, including hedge fund managers who hire him
to manage their personal accounts.
Indeed, one client who relies on
his judgment is head of ETFs at a
competing brokerage firm.
“He knows ETFs like the back of
his hand, but he can’t pull the trigger
at the right time to invest in them.
There are a lot of people like that.
After about 35 years in the business,
I have no problem going into the
burning building to try to find out
whether we can make some money.
It’s something I was born with,” says
the tall, bespectacled Bergman, who
was with Bear Stearns for 20 years
before joining Morgan Stanley in
Over two decades, the investments
he has managed have far exceeded the major indexes, he
says. In the last five years, the FA has stressed ETF investing and is, more and more, moving clients into these funds.
“History suggests that the vast majority of active man-
agers underperform their benchmark. The benefits of
ETFs are very, very strong,” Bergman says. “ETFs are
game-changing: They give you the ability to mix stocks
and bonds, and to make a sector investment in a particu-
lar area and get a very exposed piece of an asset allocation
focused in that area.”
In the advisor’s overall book, 20–25% of clients are in
ETFs, with at least $250 million invested in the funds daily.
That amount can rise to as much as $400 million to $500
million depending on Bergman’s special short-term calls,
which are typically contrarian.
For his balanced accounts, about $200 million to $250
million is allocated to ETFs, which are managed with a
proprietary, broad-based ETF-only strategy; closed-end
funds are used occasionally. For his other platform, the
advisor manages $250 million in ETFs and $500 million
in individual stocks and bonds. Another $2. 5–3 billion is
in mostly fixed income.
Bergman doesn’t buy ETFs only to put them on set-and-forget automatic pilot. In fact, that’s one of the worst ways
to use these funds, he says. Bergman actively manages them
with the distinct investment strategy that he, along with his
group’s portfolio manager, Kurt Walters, has developed.
Using a core and satellite approach, it aims for broad diversification and increased risk-adjusted
performance. The core (strategic) portion is for global diversification and
may include, for example, large and
small cap securities, short-term credit
fixed income and commodities. The
satellite (tactical) portion, to generate
some alpha, is designed for targeted
allocation of specific themes, sectors,
asset classes and valuations; usually
these are short-term plays.
Bergman offers clients three ETF
portfolios based on risk tolerance: The
aggressive one consists of 70% core
and 30% satellite ETFs; the moderate and conservative portfolios are
74%–26% and 78%–22%, respectively.
Over the years, Bergman has made
some controversial sector recommendations, for which E TFs were used as
the investment vehicle. Indeed, he has a history of stepping into sectors when everyone else is getting out—and
his results are impressive. A recent ETF home run was in
“We just exited half the position up 50%,” Bergman
enthuses. “We thought the easy money had been made.”
He suggests using ETFs to all his clients—including
those not already in them—for investing in sectors or
themes about which he feels strongly. That’s where his
tactical strategy comes in.
This year, Bergman made at least two against-the-grain
calls. Emerging markets was one: When the sector was
down 30–40% with record outflows in March and April,
he took a large position in a Latin American ETF. By summer, it was up 20%.
Another triumph came earlier this year when the common wisdom on the Street was to flee investments in the
developing BRICs countries—Brazil, Russia, India and
China. Instead, contrarian Bergman used ETFs to get
into the BRICs.
If the captain of
the ship doesn’t
know what they’re
doing, ETFs are