Portfolios Using ETFs

Updated: March, 2009

A number of our U.S. subscribers have asked us how we would implement our model portfolios using just exchange traded funds. This section responds to that request.

The following table shows the ETFs that correspond to the asset classes we use in our model portfolio solutions. Please note that we have tried to select the broadest based ETFs we could find. As we have discussed in our writing, in order to take "tilts" within these asset classes, investors may use other index or actively managed funds.

Having said that, let's move on to our (almost) All-ETF Model Portfolios. We say almost, because there are a few cases where no ETF tracks one of the asset classes we use.

One asset class without an ETF that we would recommend is timber. To track the performance of our model portfolios, we use a market cap weighted mix of timber real estate investment trusts: 70% Plum Creek Timber (PCL) and 30% Rayonier (RYN). The ETFs that exist in this category (e.g., CUT and WOOD) are not timber REITs, but rather invest in the equity shares of timber-related companies. Hence, they provide less exposure to timber as an asset class than PCL and RYN.

In the area of uncorrelated alpha strategies (where we use a mix of equity market neutral, arbitrage, currency, long/short equity and global macro), there are far fewer ETFs available than mutual funds. Hence, we still rely primarily on the latter when implementing our model portfolos' asset allocations.