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.
The materials sector is usually a good place to add foreign exposure and assets that have a low correlation to the market. In pursuit of these goals, the client's portfolio has a 3% weight in the streetTRACKS Gold Trust ( GLD) and a 2% weight in iShares S&P Global Material Index Fund ( MXI). According to PortfolioScience.com, GLD has a -0.12 correlation to the S&P 500, while MXI has a 0.34 correlation. MXI has heavy exposure to large-cap diversified mining companies like BHP Billiton, Anglo American ( AAUK) and Rio Tinto ( RTP).