E-Z Stealth ETF Portfolio

For many investors, building a portfolio often times becomes a menagerie of securities bought on a whim, hunch or with talking head endorsements. In the most recent issue of Money Magazine (another culprit, I might add), a "Special Report" inquired of prominent gurus "What to do now?". William Bernstein, labeled a financial theorist and author of the book The Four Pillars of Investing for Building a Winning Portfolio, stated, "Stop watching CNBC. It will make you stupid and poor. If you must watch, turn off the sound. It becomes an excellent substitute for Animal Planet".

David Laibson, Professor of Economics at Harvard adds,"Individual investors should not try to play the market. They should hold a long-run diversified position and should not tweak that position in response to weekly news;in fact, they should not tweak that position in response to major annual news events. Just sit on your hands." Mark Kiesel of Pimco has another opinion, "You should be buying municipal bonds." Victor Canto, Chairman of LaJolla Economics and author of Understanding Asset Allocation opines "Always (go) for 60/40 - that is,60% stocks and 40% bonds." Etc., etc.

My personal investments to many would be rather complex. I have experienced more than my share of good fortune over the past thirty-five years, and I will stick to doing my portfolios my way. Plus, I enjoy the game of placing bets on risky ventures in my Speculative Portfolio which has sparkled for the most part but only contains money I can afford to lose.

I make time to study all of my accumulated and prospective securities and other investments in depth sans hype and news of the moment to make an investment decision. I, and likely almost all readers of this post, would find the E-Z Stealth Portfolio simplistic and outperformed by competent management.

The E-Z Stealth Portfolio is not an approach I utilize.That said, I think the investor who is too busy with life and not interested in obtaining the services of a professional could have a lot worse stable of securities over the long haul than those that follow:

I like an approximate 80-20 stock to income oriented mix for E-Z Stealth, with low fees if possible.

15% (IXG) - IShares Global Financial ETF
10% (XRO) - Claymore Zacks Sector Rotation ETF
10% (EEB) - Claymore BRIC (Brazil/Russia/India/China) ETF
10% (AGD) - Alpine Global Dynamic Dividend Fund CEF
10% (RJI) - Svensk Exportcredit (Rogers Commodity Index)
10% (GWX) - SPDR International Small Cap ETF
10% (VEA) - Vanguard EuroPacific ETF
05% (DBV) - PowerShares Currency Harvest ETF
20% (IVV) - IShares S&P 500 Index

The roster is heavy ex-US,with the probability of economic power rotation in this century and a significant possibility of a social welfare stagnation in the United States, the E-Z Stealth Portfolio reflects this observation.

Why is this a "Stealth" Portfolio? Two reasons: No one has proposed it that I know of and it assumes a gradual decline in U.S. dominance to feature currency and other somewhat eclectic, yet rational investment vehicles to create the allocation mix.

The portfolio has not been back-tested. And, as stated, this does not reflect my views on portfolio theory. I found it to be an interesting exercise.

Comments

[rudi]

Hi Thomas,
I hope you don't mind me posting a few comments on the portfolio. I agree that one shouldn't try to play the market. This is in fact, however, also good advice for experts.
The portfolio as described above is obviously not a passive portfolio, but bets on a badly performing US economy. I would go so far as too say it is de facto an extremely active approach, and certainly cannot be reconciled with efficient market theory. (Which I hope you believe in, considering you are giving advice to a growing community here.)


While historically the stock market has outperformed bonds marginally, the volatility of equities is three times that of bonds.
And regarding the negative correlation between these asset classes and relying on Markowitz, one should have about 60%-90% bonds.
I would therefore suggest adding a very substantial position of WIP, for example. It is well diversified and inflation linked. Secondly, I don't understand why you arbitrarily buy different sectors and SPY as well. If you don't want to bet but to invest, buy ACWI.
Thus reducing fees, whilst establishing a greater level of diversification.
In order to fine-tune the portfolio, I would suggest reducing the RJI position, as the expected return is around the rate of inflation. So it just works as a hedge (which you do not need if you do not lever).

I would increase the carry trade position as it further diversifies the portfolio, whilst the returns are similar to those of bonds. Bear in mind, that DBV (if i remember correctly) charges 0.65% fees, which is definitely too much. One can easily look up the monthly composition of DBV and buy the currencies manually and save 90% of the fees.

There could be more fine-tuning, by adding some more asset classes and adjusting the percentages. But I am afraid I would be divulging trade secrets if I were to go any further.
Finally, a portfolio with 50% WIP added and levered by 1.5-2.0 will certainly and consistently outperform your portfolio!

best regards
Rudi

[globalmacro]

I think you're getting it mostly right by adding the often overlooked currency and commodities exposure. But to have this much diversification without real estate is baffling to me. It seems like you're missing a great diversification opportunity. You could add some intl RE exposure by simply substituting out that asinine sector rotation fund and substituting in something like RWX.

[TAS]

Response: I did certainly take pains to qualify this portfolio, but also know that no theory can predict the future. There is a little real estate exposure in the portfolio, although I agree you have to dig hard to find it. Perhaps if you read my posting(s) on real estate and my bio it will alert you that I am up to my yingyang in real estate and love it. For most investors, their home is all the real estate they want - and it is a big chunk of many total assets by default. Thanks for your comments.