All-ETF Portfolio Wins, at the Cost of Yield

A lack of yield seems to me to be the biggest drawback of using funds (ETFs or otherwise) instead of individual stocks. For example, iShares Australia (EWA) yields 3.94%, which seems like a great yield, but there are several Australian bank stock ADRs that yield close to 5%. Another example would be PowerShares China (PGJ), which has no yield, but the mega-cap names in the fund have yields of 3% and higher.

Since I first assembled this portfolio, WisdomTree has entered the fray and goes some distance toward rectifying the dividend issue. While sprinkling some of its funds into this sort of mix would increase the yield -- and to be clear, I believe in WisdomTree's products and use a couple in my practice -- there is probably a higher yield to be had by integrating individual stocks into the mix.

The big reason for this academic exercise was to show that, contrary to most of what is said and written about narrow-based products, and as volatile as some of them may be as stand-alone funds, there is a way to use them properly to construct a diversified portfolio.

By going very narrow, subsectors can be overweighted and underweighted, allowing for very precise volatility management. I believe that this portfolio demonstrates that this type of management and strategy is available without taking single-stock risk.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider StateStreet Bank, StateStreet Capital Markets, iShares Global Tech, iShares Defense, PowerShares Semicon, iShares Medical Device, StateStreet Biotech, iShares Consumer, PowerShares Food, PowerShares Leisure, PowerShares E&P, PowerShares China, StateStreet Miners, Vanguard Utilities, Vanguard Telecom and Emerging Markets Telecom to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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