Using Single-Country ETFs to Preserve Assets

Lastly, EFA is underweight a lot of important themes that could be big sources of outperformance, such as energy, Latin America, commodities and Asia.

One potential concern with any mix of funds is that the sector weightings will result in huge, and unintended, overweights and underweights vs. any normal benchmark index.

Luckily, that is not the case with the mix. The largest overweight was in the industrial materials sector with a 21.25% weight vs. 12.93% for the S&P 500. The other overweights were in the financial sector and in telecom. The underweights were in consumer goods, consumer services, health care and tech. Energy and utilities were equal weight.

The obvious drawback is the very heavy weighting to emerging markets; depending on where you think Israel fits, the portfolio is either 40% or 50% emerging. That's too much in the real world -- but surprisingly, the correlation between some of these funds is not that high.

The correlation between EWZ and EWT is only 0.654, GXC and EWT is 0.663, RSX and GXC is 0.676. The correlation does creep up a little between EWZ and GXC at 0.738 and with RSX and EWZ at 0.737.

The correlation issue is perhaps helped by the fact that EWT is mostly tech and GXC's largest sector is financials, but EWZ and RSX are each heavy in energy and materials.

As you might expect, with so much emerging market exposure, the volatility statistics are not great. The beta is 0.987. The standard deviation is 22.06, compared with 18.86 for the S&P 500 over the last 12 months (according to PortfolioScience.com).

The goal with the above mix is to have a diversified portfolio free of huge sector bets that gives a chance for normal equity returns if the U.S. continues to lag global markets.

This exercise just proves once again that investment products, like ETFs, can help investors create a diversified portfolio that captures very specific segments of the market sought after by the individual.