NEW YORK (TheStreet) -- CNBC recently broadcast a show on six ETF portfolios constructed by Jim Lowell from Forbes Magazine, Matt Hougan from Index Universe and Tom Lydon from ETF Trends. The investment themes were diversified global core, global bull, global bear, global sideways market, emerging market and rising inflation.

A few days ago, I wrote a blog post deconstructing the global sideways portfolio, noting the exercise is a positive effort that do-it-yourself investors can learn from. In this article, I'll deconstruct the diversified global core portfolio. No portfolio can be perfect. So this portfolio will have plusses and minuses that we can learn from.

The diversified global core portfolio consists of: Vanguard FTSE All World Ex-U.S. ( VEU), 30% target weight; iShares Russell 3000 ( IWV), 20%; SPDR S&P China ( GXC), 10%; iShares iBoxx Investment Grade Corporate Bond ( LQD), 10%; Vanguard Total Bond Market Fund ( BND), 10%; SPDR Barclays International Treasury Bond ( BWX), 5%; PowerShares DB Commodity ( DBC), 10%; and PowerShares G-10 Currency Harvest ( DBV), 5%.

The asset allocation is 60% in equities, 25% in fixed income, 10% in commodities and 5% in absolute return. The Currency Harvest ETF goes long on the three highest-yielding currencies in the G-10 and shorts the three lowest-yielding currencies. It's billed as an absolute-return vehicle. It's crucial that an investor have the correct asset allocation for his circumstances. The asset allocation for the diversified global core seems very reasonable for this sort of exercise.

I'm not a fan of broad-based index funds like the Vanguard FTSE All World Ex-U.S. and the iShares Russell 3000. There are two reasons for this. One is that the correlations are very high. According to ETFreplay.com, the Vanguard FTSE All World Ex-U.S. and the iShares Russell 3000 currently have a 0.92 correlation. One of the complaints from the crash of 2008 was that all correlations went to 1.00, and these two are practically there right now, which means there is almost no diversification benefit between them.

The other reason to dislike these funds is that the broadest indexes tend to be heaviest in the least attractive parts of the market. For the Vanguard fund, the largest sector is financials, at 26% of the fund, and Europe is the largest region, at 44%, including 14% in the U.K. The ETF allocates 14% to Japan. Between the headlines out of Europe these days and the fundamental problems in Japan (debt equaling 200% of GDP, among others) the fund owns a lot of things that are very unattractive. It has very little exposure to other, fundamentally healthier investment destinations like Australia, Latin America and Scandinavia.

The Russell 3000 ETF is heavy in financial stocks, and the mega caps that dominate the fund, like Exxon Mobil ( XOM), correlate very highly to the mega caps in the Vanguard fund.

All of the portfolios will be actively managed, so the decision for China to be the only emerging market is an active one that will either turn out to be right or wrong. China faces a lot of obstacles in the near term tied to over-capacity and uncertainty over whether growth can be managed properly by the government. Ten percent in one foreign country is larger than I like to go, but it's not reckless.

The iShares iBoxx Bond ETF has an effective duration of seven years, and the Vanguard Total bond has an effective duration of 4.5 years. If rates go up, and keep in mind they are at close to all-time lows these days, the longer a bond fund's duration, the more susceptible it will be to price declines. So these two are pretty good choices in the current environment. The International Bond fund stands to be a little more problematic because it allocates 24% to Japan and 19% to PIIGS countries. Should things play out badly in these places, the fund will be hit hard.

The reason to have commodity exposure is for the diversification benefits of a lowly correlated asset class to equities. The PowerShares Commodity Fund is a diversified basket that has a correlation to the Russell 3000 ETF of 0.65. For comparison's sake, the SPDR Gold Trust has a minus 0.01 correlation. Putting 10% in gold is a large exposure, and the price has gone up much more than the relatively broad PowerShares fund. But for pure diversification, gold appears to be the better bet.

Every "model" portfolio has flaws. Flaws cannot be mitigated if they're not explored. A model portfolio doesn't have to mean as few holdings as possible. ETFs offer a lot of flexibility to build a portfolio to capture almost anything. In building a portfolio of your own, there is no need to settle for flaws that are flexible.

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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