Revisiting Our Diversified ETF Portfolio

I think it’s time that we revisited our Diversified ETF Portfolio that I published on May 31, 2011.  It’s been fourteen months, and we should see how well we have done.

This posting will prove that I am not a professional investment advisor, because I am willing to document how my investment picks lost money.

Fourteen months ago, I constructed a portfolio of eight ETFs to demonstrate that we could create a diversified portfolio using only a small number of ETFs.  You can read that post here.

To recap, here are the components of that portfolio:

Category ETF
Symbol
ETF Name Portfolio
Percent
———————————- ———– ————————————————– ———–
Domestic Stocks VTI Vanguard Total US Stock Mkt. 13%
Foreign Developed Mkt. VEA Vanguard MSCI Euro Pacific 5%
Foreign Emerging Mkt. VWO Vanguard MSCI Emerg. Mkt. 7%
Gold/Silver Bullion IAU iShares Gold Trust 20%
Gold/Silver Miners GDX Market Vectors Gold Miners 5%
Commodities GCC GreenHaven Equal-Weight Commodity 15%
Real Estate VNQ Vanguard MSCI U.S. REIT 25%
Bonds BSV Vanguard Short-Term US Bond Mix 10%
——-
Total 100%
.

To chart the portfolio’s performance, I used a handy program called EzBacktest, that you can find at http://ezbacktest.blogspot.com.  I really like this tool, and its free.

Here is the portfolio performance from May 31, 2011 through August 10, 2012.
ETF Portfolio Performance
The blue area shows the portfolio’s value and the red line is the S&P 500.  These are the statistics provided by EzBacktest:

Avg. Dividend Yield:   1.55%
Annualized Return:    -0.5%
14-Month Return:       -0.6%
Under-performed the S&P 500 by 5.1%

If we had invested $10,000, our portfolio would now be worth $9,940.  We lost $60, whereas investing everything in the S&P 500 would have given us a profit of about $430.

To illustrate which ETFs were the worst performers, here is a relative performance chart provided by StockCharts.com.
Portfolio Components Performance

As you can see, the worst performers were GDX (gold miners), GCC (commodities), VWO (foreign emerging markets), and VEA (foreign developed markets).  The best performer was VNQ (real estate investment trusts).  VTI (total stock market) was just marginally better than the S&P 500.

The problem with a diversified portfolio, is that you have exposure to bad sectors as well as good sectors.  Over these fourteen months, the bad sectors were horrible, and the good sectors were mediocre.

So, the question to ask is “What do we do now?”  I still like the component ETFs of the portfolio.  So, assuming that we still want to be diversified, I will merely adjust the percentages.

I think we had a little too much exposure to gold, so I will reduce the percentages of IAU and GDX.  I would also like more exposure to US equities, so I will increase the percentage of VTI.

The foreign markets (developed and emerging) did horribly over the past year, and they may not do very well for the next year, but I still want exposure to them.  I expect Bonds to stay about the same for another year, and then decrease in value, but I will keep some exposure to them.

Commodities didn’t do well, but I expect that to change over the next year, so I will keep some exposure to them.

Here is my Rebalanced Diversified ETF Portfoio:

Category ETF
Symbol
ETF Name Portfolio
Percent
———————————- ———– ————————————————– ———–
Domestic Stocks VTI Vanguard Total US Stock Mkt. 17%
Foreign Developed Mkt. VEA Vanguard MSCI Euro Pacific 5%
Foreign Emerging Mkt. VWO Vanguard MSCI Emerg. Mkt. 8%
Gold/Silver Bullion IAU iShares Gold Trust 16%
Gold/Silver Miners GDX Market Vectors Gold Miners 4%
Commodities GCC GreenHaven Equal-Weight Commodity 15%
Real Estate VNQ Vanguard MSCI U.S. REIT 25%
Bonds BSV Vanguard Short-Term US Bond Mix 10%
——-
Total 100%
.

Let’s see if I am still willing to post the portfolio performance next year.

Permanent Link to this post: http://richardkinnaird.com/blog/revisiting-our-diversified-etf-portfolio/

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Sunday, August 12th, 2012 Stocks

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I am not a registered financial advisor. I only offer opinions, and sometimes these opinions veer off at weird angles from conventional wisdom (That's probably why you are here). My advice is, "Don't take my advice." Read my sidelong glances at economic issues and form your own conclusions.

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