While the following portfolio construction model uses TD Ameritrade commission free ETFs, it is possible to fill the critical asset classes with securities from Vanguard, Fidelity, Schwab, or other discount brokers. If you examine the descriptions you will see momentum, value, and size are all included in the investment quiver. In addition, bonds, treasuries, gold, and international ETFs are available should they be recommended by the Kipling spreadsheet. This portfolio is constructed so that global diversification is implicit.
Nudged by this Seeking Alpha article, I decided to set up a TDAmeritrade template. While the academic article is not easy to follow, the underlying thesis of using the market anomalies of size, value, and momentum are well known from the multi-factor Fama-French studies.
I’ve written about this before. Here is one such article. In this current post I’m putting together an investment quiver that shows not only what ETFs or securities one might use, but the maximum percentages for each ETF. These are personal percentage judgments that you will likely reset based on your risk tolerance.
- SPTM, SPDW, and SPEM provide global diversification.
- MTUM is the momentum security.
- MDTV and SLYV focus on both size and value.
- QUAL and QUS encapsulate the anomaly of quality. These two ETFs will also pick up value and size characteristics.
- USRT is our U.S. real estate ETF.
- SPAB, SPTL, and STIP are the bond and treasury asset classes.
- ICLN and SGOL fill in the commodities asset class.
- SH is the “short-the-market” ETFs for times when the market may be in major decline.
In the following two screenshots I show the recommendations for the BHS and LRPC models. You can duplicate these with your Kipling workbook. Note the major differences. The BHS is faster to respond to market changes and we see that in the following table where the recommendations are equity oriented. Move down to the next screenshot and you see a different set of recommendations.
While there is some overlap with the BHS recommendations, the following worksheet shows a definite bent toward bonds and treasuries. The LRPC is sticking with recommendations we have seen over the past few weeks when the equities market faltered – slightly.
Which of the models (BHS, LRPC, or HA) to use is up to you. I favor breaking the family portfolio into individual parts and using different approaches.