Portfolio Weighting: Getting It Right

by: Roger Nusbaum

Roger Nusbaum submits:

T, the author of Investing From the Right has a post up disclosing his portfolio, and he asked for my two cents.

Here is what he calls the permanent portion of the portfolio:

  • Bank of Nova Scotia (NYSE:BNS)
  • Chesapeake Energy (NYSE:CHK)
  • Claymore Dividend Hogs ETF (NYSEARCA:CVY)
  • iShares MSCI Value Fund ETF (NYSEARCA:EFV)
  • iSHARES Switzerland ETF (NYSEARCA:EWL)
  • Powershares Dynamic Buyback Portfolio ETF (NYSEARCA:PKW)
  • Claymore Water Resources ETF (NYSEARCA:PHO)
  • Energy Transfer Partners LP (NYSE:ETP)
  • First Horizon Bank (NYSE:FHN)
  • Fortune Brands (FO)
  • MDU Resources (NYSE:MDU)
  • Smithfield Foods (NYSE:SFD)
  • Verizon (NYSE:VZ)
  • Goodrich (NYSE:GR)

This next grouping is the speculative portion which makes up 30% of his equity allocation:

  • Allied Waste (AW)
  • British Aerospace (NASDAQ:BEAV)--if BEAV is the right ticker, the name is BE Aerospace
  • Converium Insurance, Switzerland(NYSE:CHR)
  • Donegal Insurance (NASDAQ:DGICA)
  • Claymore Bric- Brazil,Russia,India,China ETF(NYSEARCA:EEB)
  • iShares Japan ETF (NYSEARCA:EWJ)
  • iShares Singapore (NYSEARCA:EWS) ETF
  • Powershares Oil and Gas Service Companies ETF (NYSEARCA:PXJ)
  • Cheniere Energy (NYSEMKT:LNG)
  • L3-Communications (NYSE:LLL)
  • WellCare Health Plans (NYSE:WCG)
  • United Technologies (NYSE:UTX)

The important thing is that the mix moves in such a way to help T have a chance to get to where he wants to be, and does not cause too much anguish during normal corrections. That I view portfolio construction differently than T does probably does not mean much.

At first glance he seems very top heavy in financials; CVY 37%, EFV, 39%, EWL 24%, PKW 15% plus the position in FHN, BNS, CHR and the weightings in some of the "speculative" ETFs. Healthcare looks very light: EWL has a lot and there is the position in WCG. Industrials look about right or maybe a little heavy (tough to know because weightings for each position were not given) with UTX, BEAV, AW, LLL, GR and PHO. There is almost no tech, although Singapore does benefit from technology exports. Telecom and utilities might be about right with VZ and MDU and some of the ETF exposure.

Energy is well represented with CHK, PXJ, LNG, ETP and whatever might be in the ETFs. The consumer sectors are very underweight. Materials look to be close to zero, Brazil is covered in EEB, but that fund is only 12% materials.

There is plenty of foreign exposure and what appears to be a huge bias to value. The big weighting in financials is common when so many products are used. I wonder how volatile the energy names might turn out to be. The other thing that just occurred to me is there might be a large cap bias.

I did not plug the portfolio into any software as the weights were not given, but if they were it would have been a very time consuming task. Most of this was just eyeballing the list so I certainly may have a few things wrong. All portfolios have issues that may or may not be flaws, and while I am not trying to be harsh, it does T no good for me to just validate every aspect with no real critique.

FD: BNS, CVY, PHO, VZ and UTX are either client or personal holdings.