The smart people at ETFdb introduce the ETF Insider all-ETF portfolio, a hands-on portfolio that seeks to establish a small handful of tactical positions around a core of ETF holdings covering the major asset classes.
Total Stock Market ETF (NYSEArca:VTI): This fund is a core holding of our ETF Insider portfolio, delivering broad-based exposure to U.S. equity markets. VTI makes up a relatively small portion of this portfolio, a reflection of our view that international markets, both developed and emerging, offer greater growth potential over the long run. This portfolio starts with a base weighting of approximately 10% for VTI, with the potential to be adjusted depending on shorter-term views on the health of the U.S. economy.
Europe Pacific ETF (NYSEArca:VEA) : This ETF is our preferred tool for accessing developed markets outside of the U.S., including those in Europe and Asia. Despite the recent struggles, we believe that this asset class maintains potential for some meaningful appreciation in the short term, especially if the troubled PIIGS economies show any sign of strength.
Emerging Markets ETF (NYSEArca:VWO) : International exposure is necessary for any well-rounded portfolio, and we have selected VWO as one of our core holdings because emerging market exposure is especially attractive given the profit potential and recent outperformance of this asset class versus developed market equities. Though emerging markets have struggled so far in 2011, we believe a core holding in this asset class is necessary, and utilize some of out satellite positions to expand exposure to more promising corners of the emerging world (more on this below).
Total Bond Market Fund (NYSEArca:AGG): This ETF serves as our core fixed income holding, though we readily acknowledge some shortcomings with the exposure offered. AGG is heavy on Treasuries, an asset class that we don’t expect to perform exceptionally well in the medium-term. Moreover, the lack of international exposure prevents this fund from being truly balanced. As such, don’t expect to see our allocation to AGG rise any time soon, unless major turbulence sends us running for safe havens.
United States Commodity Index Fund (NYSEArca:USCI): Commodities have proven to have a place in nearly every portfolio, and we have included USCI as one of our core holdings since we believe it serves as an excellent diversifying agents given its low correlation to equity and bonds. While commodities often expose investors to significant volatility, the tremendous run-up in prices over the last year serves as an illustration of the potential benefits of this asset classes. While there are a number of commodity ETF options available, we prefer the methodology employed by USCI; the “contango killer” features make this fund the best long term ETF option for commodity exposure.
Global Real Estate ETF (NYSEArca:RWO): Our core holdings wouldn’t be complete without real estate exposure as we believe this asset class can still offer valuable diversification benefits and ultimately help tame overall portfolio volatility. RWO is a useful tool for establishing diversified real estate exposure as the fund allocates half of its holdings to U.S. equities, while the other half is reserved for international exposure (exclusively developed markets).
Peritus High Yield ETF (NYSEArca:HYLD): While we don’t consider HYLD to be a core holding, we believe this fund can make for an incredibly useful tactical instrument in rounding out fixed-income exposure thanks to the fund’s active management strategy. HYLD has a relatively short operating history, but its performance suggests that its experienced management team is capable of delivering alpha in the high-yield debt market relative to other passive fixed-income benchmarks. This fund is currently yielding over 7%, and has gained nearly 5% in 2011 alone. Though the alarm bells are beginning to sound in the junk bond space, we’re holding on to HYLD for the time being in hopes of squeezing out some additional yield.
China All-Cap Equities (NYSEArca:YAO): This ETF is an appealing tactical play focusing on broad Chinese equity exposure across all market-cap levels. China has carved out its position as an economic superpower and while GDP growth may be slowing down, the country still possesses a tremendous amount of potential in virtually every sector of its domestic equity market. After a disappointing start to the year, we believe there is an attractive entry point in YAO, and favor this fund as a more balanced option compared to FXI.
Barclays GEMS Index ETN (NYSEArca:JEM): Currency exposure is a tactical strategy, and we feel that JEM is an appealing instrument within this asset class, capable of delivering uncorrelated returns, and likewise improving our portfolio’s overall volatility. This ETN follows an index comprised of one month synthetic money market deposits in 15 emerging market currencies that are formed through three regional sub-indexes: Eastern Europe, Middle East and Africa, and Latin America and Asia.
Oil Bull/S&P 500 Bear Spread ETF (NYSEArca:FOL): A new family of “spread” ETFs has broadened our horizon of available tactical instruments, and while spread trading is nothing revolutionary, these new funds easily allow investors to gain the benefits of placing a spread trade without having to simultaneously purchase two separate positions. We believe that FOL, which bets on oil outperforming large-cap U.S. equities, is the perfect tactical tool to employ heading into the summer, since historically the summer months have been favorable for rising energy prices. Given the leverage used in this fund, we’re keeping a careful eye on the energy market, and will have a relatively short leash.