Let me just shatter one myth that seems to come up regularly in correspondence with readers. It is the erroneous assumption that an ideal ETF model portfolio exists that is perfect in its composition and will withstand the vagaries of the market place.
It does not exist!
Portfolio composition is a function of risk tolerance and time frame, along with its objective of growing assets, generating income, or a combination of both. Nothing more and nothing less.
In this new blog series, I am introducing 5 ETF portfolio options, some of which are being widely used in the advisor community. Of course, there are as many portfolio choices as there are advisors, so my 5 listings represent a small sampling of what’s out there.
Again, there is no right or wrong, or better or worse, when it comes to portfolios; the only thing that matters is what’s appropriate for your particular circumstances.
Let’s take a look at the first one:
1. ETF Trend Tracking Model Portfolio
Ok, in this case, I am biased. This is the portfolio allocation I predominantly use in my advisor practice. Given current market conditions, and an ever growing number of global hotspots, I like the concept of having a solid core holding in PRPFX.
Around this fund, I have added what I call boost components consisting of ETFs that can produce higher returns than my core holding, at least during bullish periods. When a market pullback occurs, the core holding will add an element of stability.
This is exactly what happened early in March, when the double natural disasters struck Japan. While the S&P 500 lost all of its YTD gains, and dropped into negative territory, this portfolio stayed positive.
Nevertheless, as you know from my writings, anything I invest in involves the use of trailing sell stops, which are shown and tracked on the upper right of the table.
2. Conservative ETF Growth Portfolio
This portfolio, as are the following ones, would be typical of what is being used in the buy-and-hold community, as you can see by the 40% allocation to various bond ETFs. If you are conservative, this simple combination could work for you, but I still recommend the use of the trailing sell stops during these uncertain times.
3. Aggressive ETF Growth Portfolio
What makes this one aggressive is the 15% allocation to bonds. This portfolio is leading the bunch on a YTD basis, because we are in a bullish period. When a correcion occurs, this one will lose value faster than all of the others.
However, if you have an aggressive streak in your personality, you could consider this one. If you use my recommended sell stop discipline, you know exactly ahead of time what your risk will be.
4. Moderate ETF Growth Portfolio
I call this one moderate growth, because of the higher allocation to various bond ETFs (26%) than in the aggressive set up above. It is also more diversfied domestically, but as the YTD return shows, that does not seem to matter much as it slightly trails my Trend Tracking Portfolio.
5. ETF Income Portfolio
This is as simple as it gets, but in the current market environement, this portfolio ranks #2, just behind the aggressive version. Howver, when a market set back occurs, this one could drop in value quickly due to no offsetting bond positions. Be sure to use a 7% sell stop on all holdings.
The key to selecting a portfolio from the above list is not just performance. Personally, I’d rather lag a little on the upside but have some assurance that I will also lag when the downside comes into play.
This will help to sidestep whipsaw signals on occasion, which are caused by temporary market pullbacks followed by a subsequent resumption of the previous up trend.
I will update these portfolios every Wednesday and inform you via email that the updated versions have been posted.
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Comments 20
Thanks Ulli, very helpful.
I am a retired CFP and agree completely with your Portfolio #1. I have been using PRPFX for many years, although I often combine it with GLRBX for a little more diversification in my conservative core holding.
Ulli:
Recently diagnosed with cancer.Was looking for a conservative investment going forward.Need less stress and stability in this time of life.The Conservative ETF portfolio got my attention.Looking to gradually build this portfolio as market conditions warrant.A long time follower.Thanks John
These 5 portfolios are currently established and have shown mostly gains since inception.
If one were to “jump in” at a later date how would you advise them in establishing similar positions? Should an investor commit the entire investment amount all at once, pick up half the shares immediately and the remainder at a later time, or average in over a period of weeks or months?
Your online postings are very logical and would give the average investor the best chance at achieving their goals with minimal risk. Thank you and keep up the excellent work.
Marty,
It all depends on your risk tolerance; you are the only one that can make that decision. Since I work with sell stops and prefer portfolio #1, I still allocate new money in its entirety, unless the client is very conservative.
Ulli…
Mark,
Sure, it’s all about risk tolerance. I charted GLRBX, and it’s even more conservative than PRPFX.
Ulli…
I have been using PRPFX for a long time. My concern, however, is that it is now over $10 billion in size. Do you see this as a problem in the future if it were to increase to say $20 billion? Obviously, not a problem with the Gold and Silver holdings but in the aggressive stock portfolio area one would expect a lot more difficulty. Please let me know your thoughts on the size issue!
Paul,
I don’t see it as a problem at this point due to the type of holdings they have. I believe fund management would decide to close to new investors first if it ever becomes an issue.
Ulli…
Is there an ETF that can be used in Portfolio 1 in place of the PRPFX fund?
Thank you for your Model Portfolios, as they confirm while giving me new idea’s. Question about your Sell of VDE. What criteria did you use that lead you to sell VDE? It was only off 5.83% from its high, and just broke the 50 day moving average.
Dick
Dick,
Hmm, I did not sell VDE. What gave you that idea?
Ulli…
Bill,
I have not found one yet. You could follow this idea
Ulli…
In your portfolio 4, you had indicated that VDE is a sell? Even I was wondering about this.
Thanks for your time.
In your portfolioi 3, you had indicated VDE as sell
I am looking at portfolio – 3.ETF Aggressive Growth 0– In the Action Column I see a SELL in line item VDE. I assumed that means you sold VDE. Am I wrong?
To Srini and Dick,
My mistake. I had not adjusted the DD% for the various asset classes. VDE being a sector fund will have to drop 10% off its high before a sell stop is triggered. There was no sell on VDE.
Ulli…
Ulli, this is very timely, in my case, so I want to thank you very much for the guidance. Keep up the good work.
John B.
Very nice job Ulli. Is tax efficiency being considered if used for a taxable account?
Ron,
No, it is not a consideration for these portfolios.
Ulli…
Dear Ulli,
Thank you for this.
I am looking forward to see the weekly updates.It is a great idea and will save a lot of time for a busy individual.
Thanks for all your posts,never missed to read one!
Alain