Are you leery about investing your money in one or two ETFs as recommended when using either the Dual Momentum or Swensen models? If so, this sample Factor portfolio goes to the other extreme. Forty (40) ETFs from all the different factors are included in the investment quiver. In this sample I am using a maximum of five (5) ETFs at any given time, but other investors will use a higher number for additional diversification.
There is nothing wrong with running a correlation analysis and trimming some of the ETFs from this investment quiver. Consider this an extreme portfolio where the maximum number of ETFs populate the investment quiver.
Factor Investment Quiver
Here we have a forty (40) ETF investment quiver. The factors include Beta or Equities (both domestic and international), Value, Size, Quality, Momentum, and Term or what I think of as risk controllers. The portfolio also meets all the Swensen “mathematical” arguments for diversification as well as set to handle inflation and deflation. If I were to make one substitution, I would slip in QQQ and remove SCHB as SCHB is highly correlated with VTI. I noticed this after I was nearly finished with this blog post.
Factor BHS Recommendations
With the investing model set to BHS and using a maximum of five ETFs the recommendations are as follows:
- Buy 341 shares of EWX.
- Buy 118 shares of VBK.
- Buy 144 shares of MTUM.
- Buy 219 shares of VFMO
- Buy 547 shares of SGOL
Of course the number of shares to purchase is a function of the cash available. If this were a real portfolio I would sell all the current holdings with exception of EWX.
Special Note: In the first screen shot you will see that I set maximum percentages for the different ETFs. SGOL has a limit of 10%. If the limit had been set to 100%, SGOL would show an allocation of 20% instead of 10%. Where did the 10% go? Five percent (5%) was moved up to VBK where it has a limit of 25%. Another five percent moved up to SHV.
EWX has an upper limit of 15% so instead of receiving 1/5 of the total or 20%, that extra 5% also moved up to SHV. If all the maximum percentages are set to 100% each of the recommendations will see 20% as the Required percentage. Hope this is clear.