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Picking Apart a Pro's All-ETF Portfolio

Mark Luschini, an equity strategist at Janney Montgomery Scott, has an all-ETF portfolio designed to be a solution for investors trying to rebuild their investments.

It's always worth deconstructing these exercises to learn from strengths and weaknesses. That way, we build better portfolios for ourselves.

Here's the portfolio:

  • Vanguard Total Stock Market ETF(VTI): 30%
  • SPDR S&P Dividend Aristocrat(SDY): 18%
  • SPDR S&P World ex-US(GWL): 9%
  • iShares iBoxx Invesment Grade Corp Bond(LQD): 20%
  • Vanguard Total Bond Market ETF(BND): 20%
  • SPDR Gold Trust(GLD): 3%

The positives include inexpensive access to many asset classes, a conservative mix that isn't overly dependent on a single outcome and the realization that price inflation looms as a threat with the inclusion of the SPDR Gold Trust.

There are a couple glaring omissions as well. There is virtually no small-cap exposure. Total stock market proponents will tell you that Vanguard Total Stock Market ETF covers the entire market, which includes small companies. But the fund is heaviest in mega-cap names like ExxonMobil (XOM - Get Report), AT&T (T - Get Report) and Microsoft (MSFT - Get Report). The ETF's small-cap stocks have miniscule weightings and are unlikely to move the needle.

Also missing is emerging-market exposure, which has proven to be a crucial asset class during this decade and is likely to be just as important, if not more so, in the next decade. The SPDR S&P World ex-US ETF is a developed market fund. How important is this? SPDR S&P World ex-US has fallen 8% this year, while iShares MSCI Brazil (EWZ) is up 21% and iShares FTSE/Xinhua 25 (FXI) is up 8%. Brazil and China are hardly off-the-radar investments, and both feature prominently in broad-based emerging-market ETFs, making them all the more accessible.

The portfolio is overweight in financials, at 21% versus 13% in the S&P 500. It has a little more than half the technology weighting of the S&P 500 (8% versus 13%). The same goes for energy. Plus, the portfolio is several percentage points overweight in utilities. This will matter if the recovery (whenever it comes) isn't led by the financial sector. Additionally, technology and energy tend to be cyclical leaders, and the portfolio is noticeably underweight in those two industries. Finally, if interest rates rise, utilities will likely lag behind.
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GWL $22.46 -1.60%
SDY $70.80 -1.20%
VTI $92.34 -1.50%
EWZ $19.04 -3.50%
FXI $28.42 -2.20%


Chart of I:DJI
DOW 15,600.81 -313.93 -1.97%
S&P 500 1,820.83 -31.03 -1.68%
NASDAQ 4,240.6270 -42.9650 -1.00%

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