The Trump Transition Trade: Q1 2025 AI-Designed Tactical Alpha Capture ETF Portfolio

Written By Bill Mann

Tug of War between the fiscal headwinds of Debt, Deficits and Demographics and the Promise of Trump Policy

  • A Q1 2025 tactical ETF Portfolio, on four themes: Technology & AI Leadership (30% exposure), Cryptocurrency Ecosystem (15% exposure), Quality Factor (35% exposure), and Strategic Regional Opportunities (12% net exposure).

  • Investment approach includes sophisticated risk management framework with position-level controls, crypto-specific risk management, stop-loss strategy, and a three-phase implementation process designed to balance risk and capitalize on emerging market trends.

  • Targets 130% Gross, net long exposure of 45%, information ratio above 0.85, 12% maximum drawdown, seeks risk-adjusted return of +15%, ETF positions in AI, Crypto, Cash Flow, and regional hedges.

The Trump Transition Trade: Q1 2025 AI-Designed Tactical Alpha Capture ETF Portfolio

On the eve of President Trump’s Inauguration, we present a tactical ETF portfolio for Q1 2025, considering the macroeconomic backdrop of moderate global growth and persistent inflation.

  • The Q1 2025 Tactical ETF Portfolio is designed to benefit from the key themes of Technology & AI, Momentum & Style Rotation, Sector Rotation, and High-Growth Crypto Assets.

  • The portfolio balances risk positions by targeting blockchain infrastructure, AI technology, and specialized crypto exposure.

  • It aims to manage risks related to inflation, interest rate volatility, geopolitical tensions, and crypto regulations through hedging strategies and guidelines.

  • The construction of the portfolio uses a core-tactical-hedging allocation framework and is guided by quantitative metrics and scenario analysis.

  • The trading strategy includes entry/exit strategies, implementation notes, and a dynamic monitoring process.

Research Methodology

Similar to prior research, we use multiple Agent-LLMs to gather expert insights and to derive Consensus and Contrarian Views across Macro, Regions, Sectors and Quant Risk Premia to design the portfolio. Building on 2025 Global Asset Allocation Wall Street Alpha Capture Outlook, we further enhanced the Outlooks with Google's NotebookLM to parse expert insights from Email, LinkedIn and other sources to derive conviction across the Global Asset Allocation ("GAA") Landscape.

2025 Global Asset Allocation Wall Street Alpha Capture Outlook: Resilience Amid Uncertainty

January 19, 2025

On the eve of President Trump's Inauguration, we present a tactical ETF portfolio for Q1 2025, positioned for an environment of moderate global growth and persistent inflation.

Executive Summary

The Q1 2025 Tactical ETF Portfolio is constructed to capitalize on four key themes through highly liquid ETF implementations:

  • Technology & AI Leadership

  • Cryptocurrency and Digital Assets

  • Quality Factor Emphasis

  • Strategic Regional Positioning

Trump Trade Q1 2025 Alpha-Capture ETF Portfolio

Portfolio Characteristics

  • Net Long Exposure: 45%

  • Gross Exposure: 130%

  • Expected Volatility: 13%

  • Weighted Average Expense Ratio: 0.42%

  • Minimum ETF ADV: >$40M

Key Investment Themes

1. Technology & AI Leadership (30% exposure)

Primary positions include:

  • ROBO Global Artificial Intelligence ETF (THNQ, +10%): Pure-play AI exposure capturing enterprise adoption acceleration and infrastructure buildout

  • Global X Robotics & AI ETF (BOTZ, +8%): Strategic exposure to Japanese robotics benefiting from yen weakness and reshoring trends

  • iShares Expanded Tech-Software ETF (IGV, +12%): Core software sector allocation leveraging cloud transition and digital transformation momentum

2. Cryptocurrency Ecosystem (15% exposure)

Core positions:

  • Bitwise 10 Crypto Index Fund (BITW, +12%): Diversified exposure to the top 10 cryptocurrencies, including altcoins, with monthly rebalancing to capture evolving market dynamics

  • Global X Blockchain ETF (BKCH, +3%): Complementary exposure to blockchain infrastructure development and service providers

3. Quality Factor (35% exposure)

Defensive core positions:

  • Pacer US Cash Cows 100 ETF (COWZ, +20%): High-conviction allocation to companies with strong free cash flow generation, particularly attractive in the current macro environment

  • iShares MSCI USA Quality Factor ETF (QUAL, +15%): Focus on companies with high ROE and stable earnings growth, providing late-cycle defensive characteristics

4. Regional Opportunities (12% net exposure)

Strategic positions:

  • iShares MSCI India ETF (INDA, +12%): Exposure to India's strong domestic growth story and manufacturing shift beneficiary status

  • KraneShares CSI China Internet ETF (KWEB, -8%): Tactical hedge against China policy risks while maintaining exposure to strategic sectors

  • iShares MSCI Eurozone ETF (EZU, -10%): Strategic hedge against European economic challenges and monetary policy risks

Risk Management Framework

Position Level Controls

  • Maximum single ETF exposure: 20%
  • Theme exposure cap: 35%

  • Continuous correlation monitoring

  • Dynamic rebalancing triggers

Crypto-Specific Risk Controls

  • Daily volatility monitoring

  • Premium/discount tracking

  • Rebalancing event analysis

  • Multiple prime broker relationships

  • Enhanced liquidity requirements

Stop Loss Framework

  • Individual Position: 12%

  • Theme Level: 15%

  • Portfolio Level: 8%

  • Custom crypto circuit breakers

Liquidity Requirements

  • Position unwind capacity: 2 days

  • Enhanced crypto liquidity buffers

  • Real-time monitoring thresholds

  • Block trading protocols

Implementation Strategy

Phase 1: Core Positioning

  • Establish quality factor base (COWZ, QUAL)

  • Build technology leadership positions (THNQ, BOTZ, IGV)

  • Implement systematic crypto exposure (BITW)

Phase 2: Risk Management

  • Deploy regional hedges (KWEB, EZU)

  • Establish options overlay

  • Implement crypto monitoring systems

Phase 3: Portfolio Completion

  • Complete remaining allocations

  • Activate monitoring framework

  • Establish rebalancing protocols

Performance Targets

  • Information Ratio: > 0.85

  • Maximum Drawdown Limit: 12%

  • Tracking Error: 3-5%

  • Risk-Adjusted Return Target: +15%

Trading Implementation

Tier 1 Positions (ADV > $100M)

  • QUAL, COWZ, IGV, EZU

  • VWAP execution over trading day

  • Maximum 15% of daily volume

  • Market orders during normal volatility

Tier 2 Positions ($50-100M ADV)

  • KWEB, BITW, BOTZ, THNQ

  • TWAP execution with price collars

  • Maximum 12% of daily volume

  • Block trading opportunities

Tier 3 Positions (< $50M ADV)

  • INDA, BKCH

  • Working orders with limits

  • Maximum 8% of daily volume

  • Creation/redemption monitoring

Monitoring Framework

Daily Oversight

  • Position drift analysis

  • Volatility regime monitoring

  • Correlation stability checks

  • Crypto market dynamics

  • Liquidity conditions

Weekly Review

  • Performance attribution

  • Risk budget utilization

  • Factor exposure analysis

  • Rebalancing assessment

Monthly Assessment

  • Strategy review

  • Market environment analysis

  • Risk framework evaluation

  • Implementation efficiency

Appendix

Portfolio Recommendations with Conviction-Based GAA Outlook

Portfolio ETF Allocations

ETF Tickers and Long/Short Conviction-Based Portfolio Weights

Thematic Exposures

Allocations based upon GAA Thematic Outlooks Across Assets, Regions, Sectors and Risk Premia

Portfolio Performance Metrics

Net Long Exposure: 45%, Gross Exposure: 130%, Expected Volatility: 13%

Portfolio Correlation Matrix

Correlations by ETF Ticker

Key Correlation Insights

  • Tech cluster (THNQ, BOTZ, IGV) maintains high correlation (0.68-0.82)
  • Crypto pair (BITB-BKCH) shows strongest correlation (0.85)

  • Quality factor ETFs (COWZ-QUAL) exhibit strong relationship (0.75)

  • INDA provides good diversification with low correlations (0.20-0.38)

  • SH maintains consistent negative correlations (-0.32 to -0.68)

Bill Mann

Bill Mann is a seasoned expert in bridging the gap between traditional fundamental analysis and cutting-edge quantitative methodologies. His career in quantitative finance was shaped by a pivotal experience during the 2008 financial crisis at AIG, where he witnessed the dangers of emotional attachment to underperforming investments. This experience sparked his shift from Fundamental to Quantitative analytics, which led him to key roles at Bloomberg and AQR, and ultimately to eight impactful years at Two Sigma.

Throughout his tenure at quantitative hedge funds, Bill led initiatives to optimize alpha modeling throughput by spearheading collaborative research processes that integrated advanced data science and ML/AI capabilities. His unique blend of expertise, underpinned by CPA and CFA designations, enabled him to excel as an industry-specific quant fundamentals analyst, combining fundamental research with quantitative rigor.

As the Co-Founder and Managing Partner of HarmoniQ Insights, Bill now offers his clients a powerful combination of deep industry knowledge and expertise in cutting-edge technology. He empowers fundamental analysts to make confident, data-driven decisions through sophisticated statistical analysis. Leveraging his extensive experience collaborating with quantitative researchers and engineers, Bill is adept at building consensus among senior executives, guiding them to invest with confidence in transformative technologies.

When he’s not driving innovation in the finance world, Bill enjoys playing tennis or spending a day at the beach with his children.

https://www.harmoniqinsights.com
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