If the emails I've received from readers and the comments left on my blog are any indication, a lot of folks are pretty unnerved by the stock market's recent decline.

So I've constructed a portfolio of exchange-traded funds and mutual funds with returns that have a low correlation to the S&P 500. In fact, this is almost a lazy man's portfolio: The only thing you need to monitor is whether any new products are introduced that will turn out to be better mousetraps.

The benefit of this sort of approach is that you have a good chance of being down less in a bad market. But you will likely be up less the next time the market is up 25% in a year.

PowerShares S&P 500 Buy Write Portfolio ( PBP), 30% allocation.

PBP is a proxy for U.S. exposure. It is a new fund that benchmarks to the CBOE Buy Write Index. As you can see from the two-year chart comparing it with the S&P 500, the Buy-Write index feels the ups and downs but does so with reliably less volatility. Over the last 10 years, it has had about 73% of the volatility. So PBP should track the Buy-Write index and also offer some yield (the dividend will be composed of dividends from the 500 stocks in S&P plus the call premium. You can read more about the fund here.

Wisdom Tree Pacific Ex-Japan High Yielding Equity Fund ( DNH), 20% allocation.

DNH is mostly invested in Australia and New Zealand. It is not necessarily a low-beta fund, but Australia offers excellent diversification because as a commodity-based country it is usually at a different point in its economic cycle than the U.S.

Moreover, Australia's unemployment rate is going down, not up, and its central bank, the Reserve Bank of Australia, is mulling whether to raise rates, while the Fed has been lowering rates.

As I wrote here, I prefer DNH over the iShares MSCI EAFE Index Fund ( EFA) for several reasons including its higher yield and lower correlation to the U.S. market.

iShares S&P Global Infrastructure Index Fund ( IGF), 5% allocation.

I wrote about this fund a few weeks ago in the hope that it would offer results that do not correlate to the U.S. stock market. So far the correlation has been 0.52, and since inception in mid-December, IGF is down only 8% vs. 12% for the S&P 500. While that may not sound great, remember that the goal is to be down less.

The idea here is that regardless of cycles and market action, infrastructure spending will continue. I would not hold out false hope that infrastructure stocks could somehow go up when everything else is going down, but I believe there is a fundamental case for them going down less and generally being less volatile.

iPath DJ AIG Agriculture Total Return Sub Index ETN ( JJA), 5% allocation.

Commodity exposure is a great way to reduce a portfolio's correlation to the S&P 500. Since inception, JJA has had a negative 0.163 correlation to the S&P 500, and it's up 20% through Friday, vs. an approximate 15% decline for the S&P 500.

The reason I am going with food over gold is that I buy into the notion that food will become a more precious commodity as demand increases. JJA and other investments that track agriculture prices are all up a lot lately, and while they could be volatile, they should continue to have very little correlation to U.S. stocks.

( NARFX) Nakoma Absolute Return Fund (NARFX), 10% allocation.

Nakoma is an actively managed long/short fund that has a correlation of just 0.292 to the S&P 500 with about a quarter of the volatility. I interviewed the fund's managers last fall and came away very impressed. Like the hedge fund that preceded it, NARFX has a track record of very slow and steady gains.

This strikes me as a great tool for those who have low thresholds for market volatility. Over the last 12 months, NARFX is up 10%, vs. a decline of almost 10% for the S&P 500.

( RYMFX) Rydex Managed Futures Fund (RYMFX), 5% allocation.

RYMFX has attributes similar to Nakoma's, but instead of buying some stocks and selling others short, it buys some commodity and financial futures and sells others short. I wrote about the fund last March. Since its inception, RYMFX is up 9%, while the S&P 500 is down 5%. The fund has a correlation to the index of negative 0.062.

As with Nakoma, I believe RYMFX has proven it can deliver what it says it will: a very boring holding that drifts higher over time.

iShares Lehman TIPS Bond Fund ( TIP), 15% allocation.

This is obviously not a fund that tries to knock it out of the park in terms of its yield (which was 2.31% for the underlying index at year end). But its price is relatively steady, and it offers protection against inflation, and that, depending on your time horizon, may be more important than yield. TIP has a negative 0.460 correlation to the S&P 500.

SPDR Lehman International Treasury Bond ETF ( BWX), 10% allocation.

It makes just as much sense to diversify your fixed-income holdings with foreign bonds as it does to diversify your equity holdings with foreign stocks. This ETF has a negative correlation to the S&P, and its volatility is low.

However, there is a drawback that is mostly due to its 22% weighting in very low-yielding Japanese market: BWX only yields 3.89%. So the caveat that you need to keep your your eyes out for a better mousetrap applies more here than with the other components of this portfolio.

Several of the products I've chosen for this portfolio are quite new, so the longest back-test of results possible would only go back to Dec. 12 (and even then that requires using the iPath CBOE S&P 500 Buy Write ETN ( BWV) as a substitute for PBP).

From that date through Jan. 18, the S&P 500 has fallen 10.8%, vs. just a 4.24% decline for this portfolio. That result certainly lives up to the portfolio's billing, but as I said before, it it is sure to lag during an up market, and that's the direction the market heads the vast majority of the time.

At the time of publication, Nusbaum or one of his clients was long DNH, BWX, BWV, RYMFX and NARFX, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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