Geoffrey Lordi

The Top 10 ETF Model Portfolio

Nice consideration of mainstream etfs, Matt. Your article provides an excellent foundation for those interested in building etf portfolios for the intermediate to long term.

I'm a little concerned about high correlations among the above selections, however. With few exceptions, most of those choices - regardless of money flows - are highly correlated with one another over 1 and 3 year periods. And while many folks might hold them for longer, a large chunk of their portfolios would still be locked up in pretty high r^2 choices in the 4+ year (and beyond) range.

(Remember, anyone interested may 1) download data (closing price) for an etf in a prescribed period from Yahoo Finance to a spreadsheet, 2) align that data column near one for SPY, DIA, or QQQQ (or whichever other average for which you seek correlation data), and 3) use the CORREL command to check comovement: as such "CORREL(A1:A100,B1:B10... Performing your own correlation checks often 1) yields more varied period options than you'll see in the various etfs' glossy literature and 2) allows you to build tables that better help you analyze the r^2 of your portfolio.)

May I recommend an alternative to FXI? Loaded with financials (49%), one could argue for alternatives unless one seeks that bias. CAF, since its inception as a Morgan Stanley CEF, has outperformed FXI. It also does so on the 1- and 2-year time scales (even with roughly double the yearly fee), and holds less of a financial disposition (34%) to boot. (Note: The fund currently has 14% in cash.)

I do like LQD, own GLD, and have owned VTI long enough in several accounts that it has performed as advertised.

QQQQ is a relatively diversified pick, as well, for a popular average (0.84 r^2, depending on the period) because of its relatively large health care allocation: 20% (Amgen, Gilead, Teva); and, consumer discretionary: 12% (Costco, Starbucks, and DirecTV).

Readers wishing to add additional etfs for consideration to Matt's thoughtful presentation might want to study those in international energy or real estate, a currency hedge vehicle (DBV or ICI), or some commodities (but be mindful of the oils' waitings: unless you're content with over saturation, and equal-weight product such as Greenhaven's GCC might be more your style). A few other considerations might be to include an allocation to municipal and junk bonds, international or domestic utilities, or alternative style etf constructs (I'm thinking mainly of WisdomTree's dividend-paying based models as alternatives: for example, DEM instead of EEM or VWO).

New Candidates for the Dow Jones Average

SKF is the ProShares Ultra*short* financials, but yes, it's up 12.7% over the last 52 weeks...

Dogs of the Dow 2009

The funny thing is that I've never considered building a portfolio based on the DotDow strategy...I've picked one or two on occasion, attempting to game recovery based on a few elements I consider reparable. But never a full basket. How many folks actually do this? I've heard about it for years - from a multiplicity of sources - but never knew anyone who invested this way. And the strategy has never fit me, or anyone for whom I invest.

Thanks for the breakdown.

An ETF Package That Outperforms the S&P 500

Hi,

I imagine this allocation model is more a general concept exercise than a directive to select only iShares' products. There are, after all, less expensive etfs, and better performers, as well. Still, as a domestic only exercise, it's an interesting concept.

I've seen some folks build some models solely on market capitalization, as well (the famous/infamous "9 square" model), which is also a fine study, albeit difficult to keep appropriately tuned.