How many securities should one consider for possible investment or portfolio construction? For Gary Antonacci style Dual Momentum portfolios we need only three ETFs as illustrated below.
- U.S. Equities (VTI is an example)
- International Equities (VEU is an example)
- U.S. Bonds (AGG is an example)
Three ETFs is a minimum to provide any type of diversity. The “Swensen Six” uses only six ETFs plus SHY. The next level or example is the “Rutherford 10.” The Hawking currently uses 24 ETFs plus SHY. Most of the LRPC portfolios I track have between 10 and 20 securities in the investment quiver. For example, the Kepler comes up for review this week and I am currently using 20 securities plus SHY. Keep in mind, this is the starting number of securities, not the number used to populate the portfolio at any one time.
Do ITA readers favor fewer (5 to 12) or more (12 to 25) securities for possible investment when constructing a portfolio? HedgeHunter recommends that one set the Maximum Number of Assets to the top quartile. If you begin with 12 ETFs in your investment quiver, set the Maximum Number of Assets to three (3). If you have 20 securities in the quiver, as I do with the Kepler, then set the Maximum Number of Assets for investment to five (5).
The next question has to do with portfolio tracking. Please post a comment if you are using the Investment Account Manager (IAM) software to track your portfolio. If you are not using IAM, and are interested, let Matt or Peter know at Quant IX. I think they will give you a discount if you let them know you are a Platinum member at ITA Wealth Management.
I highly recommend readers use a portfolio tracking program. In my portfolio reviews I provide six examples for benchmarks. Set up your own if none of these are appropriate for your portfolio.
If enough readers participated, we might gain some insight into how many securities work well for potential investment. Few ETFs are required with the Antonacci Dual Momentum model. Is performance enhanced if the number is increased to 10 or more?
When I think about this I’m reminded of an astute investor, Philip Fisher, who held only six stocks in his portfolio. Now that is portfolio concentration. All our portfolios carry greater diversification by the very fact that we primarily use ETFs to populate our portfolios.