Some investors may choose to deliberately overweight or underweight certain market segments or industry sectors based on their assessment of market or economic cycles.

Market capitalisation weighted ETFs offer an efficient way to target your desired tilt.

Here's an example.

If you believe that after a protracted period of outperformance by developed market stocks that the pendulum is likely to swing the other way, you might invest in an emerging market orientated ETF.

You should consider the following.

You could end up doing worse than if you've made no changes at all.

Whether buying or selling, you would have to be right about the direction of the market, the economic cycle, the sectors that might profit from it, and the timing of your investments.

Furthermore, concentration in any security, industry sector, market segment, region or asset class can lead to greater risk relative to a diversified portfolio.

Now let's look at overlay management.

A portfolio of ETFs can be used to provide similar exposure to the strategic asset allocation, but with additional liquidity.

Since the financial crisis, liquidity is a source of concern for many investors. One option to address this is to increase the allocation to cash. However, this might result in a performance drag when compared to the strategic asset allocation benchmark.

Alternatively, as shown in this example, a certain percentage of the portfolio can be invested in ETFs mirroring the strategic asset allocation.

As a result, the portfolio is fully invested, but with additional liquidity,

Always be aware that trading costs may offset some of the potential advantages.