I've written about many exchange-traded funds, and I thought it would be worthwhile to see how these ETFs coordinate to create the equity portion of a diversified portfolio, or at least my idea of one. The following is an actual account, recently implemented, that shows a blend of ETFs, common stocks and even a closed-end fund.

I'm not a fan of all-ETF portfolios, but I'm a big believer in using the best tool to capture a given effect. For some people, the best tool might be an ETF, and for others, it might be a stock. The following represents one person's best way to capture a diversified portfolio. For purposes of this article, I'll go sector by sector, but focus on the funds.

Financial

In the financial sector, the client has 3% in a domestic large-cap bank stock, 3% in an Irish bank stock and 9% in the WisdomTree Pacific ex-Japan High-Yielding Equity Fund ( DNH), which I wrote about a few months ago. It's less volatile than the S&P 500 and has a 6% yield.

DNH has 87% of its assets in Australia, which is known for mining, but 50% of the fund is in Australian bank stocks. The chart shows that DNH is really a proxy for Australian financials, as it correlates almost exactly with National Australia Bank ( NAB) and much less so with BHP Billiton ( BHP). Therefore, its total weight in the banking sector is 15%, compared to 21% for the S&P 500.

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