Regular readers will know that I’ve long been a fan of ETFs. Like investment trusts I think they have a place in every adventurous investors’ portfolio. In particular I think adventurous types can easily build buy and hold, long term simple portfolios full of easy to access ETF funds. the emphasis on these portfolios is buy and hold i.e keep it simple, don’t make it too complicated and sit tight for a decade or two. With this in mind, I’ve built two different model ETF portfolios which I have populated with easy to access, lower cost index tracking funds. To repeat, these are long term portfolios for the adventurous investor willing to sit tight for the next 10 to 20 years. Thus both model portfolios fit the growth investor label and are high risk.i.e I completely expect that both portfolios could lose anything between 10 and 30% in a bad sell off – this is not widows and orphans stuff!
I’ll be reviewing these portfolios on a quarterly basis, with the first review in early January 2020.
My two ETF Growth Portfolios
With one of the portfolios I’ve assembled together a range of what I would label thematic funds and ideas. These are ideas about future growth that don’t fit a conventional definition based on say geographies or the size of the listed business. They cut across sectors and geographies and aim to capture broad trends and themes.
The second growth portfolio is more ‘conventional’ in that it does use some of the conventional geographies and sectors, but looks to invest money in areas where I think the growth potential is huge. It goes without saying that both portfolios are potentially high risk and absolutely not for widows and orphans. You need to be willing take 10 or even 30% losses in some bad years.
That said, there are some basic common principles animating both of these portfolios.
- I want no more than 8 exchange traded funds per portfolio. I think that eight funds provide enough diversification to be meaningful but not too many stocks to trade in and out of
- I’m also keen to have a range of ETF providers i.e there’s a wider ecosystem of issuers than just iShares and Vanguard, the market leviathans
- Ideally I’d like to keep the total expense ratio of the underlying funds around ( or below) 50 basis points or 0.5%
- I will be annually rebalancing though not in a purest fashion. I may take profits and reinvest in some losers
- I’m not looking at trading in and out of these funds. I’ll review quarterly and I may cut some losses, but this is a long term buy and hold portfolio
With these broad principles in mind, I have two portfolios to share this week.
The first – the Global Trends Portfolio – is as I have already mentioned built on a simple insight. That the traditional definitions between different investment options is too rooted in a legacy worldview. That means tethering your choices to ‘geographies’ or traditional ‘sectors’. In my opinion many of the most interesting trends I would like to capture cross these traditional sectors or geographies.
The second portfolio – The Adventurous – is a tad more conventional and does use those more traditional definitions but harnesses them to capture possible future capital growth.
Clearly both these model portfolios have some very obvious RISKS. My asset allocations are based on my own observations and may be hugely unsittable for many readers. In particular I concede that many of the underlying stocks in these index tracking portfolios are highly rated and thus could fall in value in a stockmarket sell off. I also have a clear technology bias which brings with its own risks – new regulations for instance – although I have been careful to steer away from too much reliance on a handful of huge US tech stocks.
Portfolio 1: Global Trends
With this portfolio I’m looking to allocate to five main buckets of risk and opportunity:
- Healthcare and Biotech 25%
- Global Mega large cap 25%
- (Niche) Technology 20%
- EM and Asia (Tech) 20%
- Mega trends outside of tech 10%
|Asset Class||% of portfolio||ETF||TER %||1 year return||3 year return|
|Asian Consumer||20%||EMQQ EM Internet and Ecommerce||0.86%||48%||NA|
|Global Water||5%||iShares Global Water (USD)||0.65%||3.85%||24.15%|
|Biotech 1||12.5%||Invesco Nasdaq Biotech (USD)||0.40%||30.94%||33.60%|
|Healthcare||12.5%||iShares Healthcare Innovation||0.40%||25.49%||50.43%|
|Cyber Security||10%||LGIM Cyber Security||0.75%||14.19%||69.65%|
|Global Agribusiness||5%||SPAG iShares Agribusiness||0.50%||-12%||-2%|
|Global Large Cap||25%||Lyxor Global Titans 50||0.40%||12.26%||43.69%|
|E Gaming||10%||VanEck Video Gamign and E Sports||0.55%||53%||NA|
|Blended Average TER||0.54%|
Background to the portfolio
|Asset Class||% of portfolio||ETF||Explanation|
|Asian Consumer||20%||EMQQ EM Internet and Ecommerce||Simple concept – invest in the Asian consumer, especially as they go online. This ETf is expensive but carefully crafted to capture this trend by a specialist index provider who understands this space|
|Global Water||5%||iShares Global Water (USD)||My hunch is that whatever happens with climate change more and more money will be spent on water services and technology.|
|Biotech 1||12.5%||Invesco Nasdaq Biotech (USD)||My core conviction is that healthcare generally is on the cusp of a momentous step change with big new advances imminent. The biotech sector is full of the most interesting ideas|
|Healthcare||12.5%||iShares Healthcare Innovation||This focused iShares ETF looks to cover of those stocks not in biotech that will power the coming healthcare revolution. The index comprises companies which are generating significant revenues from specific sectors focused on pushing the boundaries in medical treatment and technology|
|Cyber Security||10%||LGIM Cyber Security||Another simple concept. As everything goes online, digital security gets ever weaker, and corporates spend ever more money on cyber security.|
|Global Agribusiness||5%||SPAG iShares Agribusiness||As with the water sector, my hunch is that climate change will provide huge structural change in the agri business sector which needs to feed ever more people, at lower cost. This ETf has under performed in recent years but I think that might be about to change.|
|Global Large Cap||25%||Lyxor Global Titans 50||This is an excellent ETF with a great track record. It invests in global leviathans who have built competitive moats around their high margin businesses. Want global leviathans, invest in this ETF|
|E Gaming||10%||VanEck Video Gaming and E Sports||Talk to your children – especially your son – and ask them how much time they are spending gaming. Girls are also catching up. This ETf invests mainly in the picks and shovels providers of the gaming revolution but it also invests in the game software businesses and the emerging e-sports sector.|
Portfolio 2: Adventurous
Again, I’m looking to allocate to five main buckets of risk and opportunity:
- UK 15%
- Europe exc UK 15%
- US 25%
- EM and Asia 20%
- Japan 10%
- Multi thematic inc Tech and Gold equities 20%
|Asset Class||% of Portfolio||ETF||TER|
|UK – domestic focused equities||15%||Vanguard FTSE 250 Dist – XMCX||0.10%|
|Europe exc UK||15%||iShares MSCI Europe exc UK GBP Hedged||0.40%|
|US equity||25%||X Trackers S&P 500 Equal Weight – XDWE
Ossiam Shiller Barclays CAPE US Sector – CAPU
|EM and Asia||15%||HanETF GINS EM Internet and Ecommerce – EMQQ||0.86%|
|Japan||10%||Lyxor Core MSCI Japan Hedged – LCJG||0.20%|
|Gold Miners||5%||VanEck Gold Miners||0.53%|
|Healthcare||5%||iShares Healthcare Innovation||0.40%|
|Multi-Thematic||10%||HANS GINS Tech Megatrend EW – ITEK||0.59%|
|Blended average TER||0.48%|
Background to the Portfolio
|Asset Class||% of Portfolio||ETF||Explanation|
|UK – domestic equities||15%||Vanguard FTSE 250 Dist – XMCX||UK listed businesses with a strong domestic exposure are cheap on virtually any international measure. Too cheap in my view. This ETf has a strong UK economy focus. That’ll probably be a terrible place in the short term but long term I think it’s a great value proposition.|
|Europe exc UK||15%||iShares MSCI Europe exc UK GBP Hedged||My sense is that Eurozone stocks are also cheap – alongside the UK – partly because everyone doubts the European integration project. I think the cynics are wrong and Euro corporates are ideally positioned to benefit from the post Covid bounce|
|US equity||25%||Ossiam Shiller Barclays CAPE US Sector – CAPU||Having some exposure to US equities is absolutely crucial but I’m keen not to be too over exposed to a small handful of mega large cap tech leviathans. Rather I’d like to have some exposure to cheaper, more value oriented large caps which are tracked by this novel ETf which is based on the ideas of economist Robert Shiller.|
|EM and Asia||15%||HanETF GINS EM Internet and Ecommerce – EMQQ||Simple concept – invest in the Asian consumer, especially as they go online. This ETf is expensive but carefully crafted to capture this trend by a specialist index provider who understands this space|
|Japan||10%||Lyxor Core MSCI Japan Hedged – LCJG||Japan is another essential for any long term growth portfolio, especially given its obvious Asian location and access to growing regional markets. The challenge has always been to build this exposure without the yen cutting into gains you might make. This ETF hedges your exposure to the large cap MSCI Japan index.|
|Gold Miners||5%||VanEck Gold Miners||My hunch is that gold prices will carry on rising for many years to come and if that is the case exposure to predominantly low-cost gold mining stocks is a leveraged way of playing this trend. This ETf from VanEck gives very targeted exposure to these Gold miners.|
|Healthcare||5%||iShares Healthcare Innovation||This focused iShares ETF looks to cover of those stocks not in biotech that will power the coming healthcare revolution. The index comprises companies which are generating significant revenues from specific sectors focused on pushing the boundaries in medical treatment and technology|
|Multi-Thematic||10%||HANS GINS Tech Megatrend EW – ITEK||This is a novel ETF from provider HanETf which invests equally across a range of thematic Etfs from the issuer. These include indices tracking everything from cloud based corporates through to internet businesses in emerging markets. Its not a cheap fund of fund and you are tied to HANetf’s own product range – each index is equal weighted – but it’s a useful single fund solution for some big, important themes that could power future stockmarket capital growth|