The ETF Universe of the Conservative Model Portfolio

Several members have asked us more information regarding the ETF universe on which the Conservative Universe is based upon.

This is a relevant question, as the definition of the universe is a key step in creating this kind of strategies. Indeed, this step of the process has to balance several needs:

  • The need to be comprehensive in the coverage of broad asset classes.
  • The need not to include too many extremely correlated ETFs
  • The need to limit the size of the universe, and carefully consider the volatility and behavior of the ETFs you include in your universe.

There is also a degree of subjectivity when creating a universe. The process inevitably implies some degree of anticipation of what you expect the future to bring. This is why you will find in our universe an ETF like XLE. We do believe, indeed, that we are likely to experience several period of strong trends in energy stocks over the next decades. Supply constraints, booming world demography and ever increasing demand from emerging markets trying to catch up with advanced economies are among the factors behing such analysis. We want our system to be able to catch such trends when they occur in the future.

This introduction has already been too long, so let’s get to the point: here is the composition of our ETF Universe. At the end of every month, we will publish the Top 6 highlighted by our model to our subscribers so that they can make their allocaction decisions.

1/ Advanced Markets Equities (8)

  • U.S. Equity: SPY (S&P500 index), VB (Small caps), XLE (Energy Sector), PFF (U.S. Preferred Stocks index)
  • Other advanced: EFA (EAFE Index), EWJ (Japan), EWC (Canada), EWA (Australia)

2/ Emerging Markets Equities (6)

  • Regional ETFs: ILF (Latin America), GMF (Asia),  FRN (Frontier Markets)
  • Country ETFs: EWZ (Brazil), INP (India), FXI (China)

3/ Real Estate Investment Trusts (REITs) and Quasi-Equity (2)

  • VNQ (U.S. REIT)
  • AMJ (Master Limited Partnership Index)

4/ Commodities (4)

  • DBA (Agricultural commodities)
  • DBB (Base Metals)
  • DBO (Oil)
  • GLD (Gold)

5/ Fixed-Income (5)

  • U.S. Treasuries: SHY(Cash), TLT (Long Term Treasuries), TIP (Inflation-Protected Treasuries)
  • Corporate Bonds : AGG (Aggregate bond market), HYG (High-Yield Corporate bonds)

6/ Inverse ETFs (1)

  • SH: Short S&P500