Constructing a Portfolio the ETF Way

Perhaps the ideal holding is a foreign fund, so the WisdomTree International Financial Fund (DRF Quote - Cramer on DRF - Stock Picks) should be studied. Here again, though, there are composition issues to be aware of. The fund has a 6.6% weight in HSBC (HBC Quote - Cramer on HBC - Stock Picks), the largest holding, which has made news of late for subprime issues in the U.S. Anyone considering DRF should probably have an opinion on HSBC.

Maybe the answer is the iShares S&P Global Financial Sector (IXG Quote - Cramer on IXG - Stock Picks) ETF. It is cap-weighted, but the largest holdings only comprise 3% each within the fund.

There are also several ETFs that primarily reflect other themes but, as a secondary effect, capture the financial sector, such as the WisdomTree Pacific ex-Japan High Equity (DNH Quote - Cramer on DNH - Stock Picks) ETF. I have written about this fund before and own it for a few clients because I believe it serves as a proxy for the Australian banks due to high correlation and its 43% weight in Aussie financials. The Australian banks are a very important theme.

Some other ETFs that have secondary effects include iShares MSCI Taiwan (EWT Quote - Cramer on EWT - Stock Picks) for foreign tech, PowerShares Water Portfolio (PHO Quote - Cramer on PHO - Stock Picks) for smaller-cap industrials and the First Trust IPOX 100 ETF for small-cap growth.

Mix 'n' Match

There are other segments that might be desirable but are not easily accessed in an ETF. For example, themes that I own or have owned in the past include Ireland and Chile. There is no way I know of to access these countries in an ETF, and so a common stock becomes, in my opinion, the best way to access those countries.

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