ETF Portfolio Allocation Percentages

Hi all!
I am looking to build an ETF portfolio, and there is one thing I am still debating, which is the percentage allocation of each ETF in a portfolio. I know that can be done equally (i.e., 20% per ETF on a 5-ETF portfolio) or not (i.e., selecting core ETFs to which we allocate a higher percentage and then assigning the balance to the remaining lot). I also did some simulations with allocations based on past performance, so the higher the normalised return (10 years max), the higher the assigned percentage.
Any thoughts and suggestions?

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Only you know your investment goals.

With all due respect, I am not talking about investment goals. It’s a technical question about percentage allocations regardless of the ETF type.

You can select whatever % split suits your goals.

This has nothing to do with goals. Would you please stop shifting the attention onto something else. Thanks

It depends which ETFs you choose but in general I prefer to allocate more to some core ETFs and the remaining to some sectors or themes you want to bet on.

Do you have any particular ones in mind?

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Thanks HuskyDogg! I am not looking at anything in particular; I am gathering information about the different allocation styles. I must admit that your strategy is the one I have been across the most so far, so it does make sense. I am simply researching and curious to see if there might be alternative methods that, despite being not of common use might be interesting.

Your goals, risk appetite clearly come into portfolio construction as will help define tolerances for initial, max and rebalancing of your portfolio.

What are you planning to invest in, what is your investment timeframe, what do you want your pie to achieve?

There really is insufficient information in your post to really comment on your allocations.

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This is more of a research exercise to understand the different styles and how/when these tend to be used depending on the situation. For example, we could look at two sample ETF portfolios, one buy-hold for retirement and one for income generation.
In terms of risk appetite, I usually look into three different levels such as conservative, moderate, and aggressive.

Generally speaking, due not knowing your time horizon and risk profile, you can start with some building blocks, such as:

Global ETFs (equities and bonds), the % of each will depend on your time horizon and risk profile.

If you don’t need regular income, the preference would be for Accumulation ETFs.

If want a bit of spice, having 2 portfolios:

  • 1 for medium/long term (strategic allocation) with more conservative investments (global and US ETFs and some sector ETFs) → An “All-terrain” portfolio
  • 1 for short term (tactical allocation) for regional, countries, sectors, thematic and smart beta ETFs, your more aggressive and opportunistic portfolio. → “Sports car” portfolio

For the M/L portfolio a great % and a smaller % for the short term portfolio, depending on your risk apetite.

A 3rd portfolio could have an even smaller % for Money or MMF, to have some dry powder for some opportunities that could appear, including reinforcing some of the other 2 portfolios. (I suppose you already have set aside extra money in a 6-12 months “emergence fund” for any day-to-day situation that could appear).

Could also mix some stocks in above strategies. Individual stocks are a new layer of risk, so be careful with that.

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That is very good RLX, many thanks!
Do you have any preference in the % distribution of individual ETFs within each portfolio? Do you focus on core ETFs and then allocate the rest accordingly, or do you use another method?

The easy/simple and fast approach will be an equal-weight. For those with time and expertise could go a lit further and tweak the % accordingly.

I tend to give more % to a global equity ETF (Core portfolio) for M/L, it’s less risky and higher return (I invest risk-adjusted returns investments). And smaller % to satellite portfolio. It could be 70/30%.

My allocation is 100% equities. Although if T212 would have crypto ETNs in platform UK (for EU customers), I would put up to 5% in crypto ETN. As it isn’t possible, I’m studying other brokers to invest in crypto ETNs there.

@RealValueInvesting I believe a globally diversified market cap weighted ETF should be your core long term investment. Something like Vanguard FTSE All-World or similar. I believe 80%-100% to it is sensible and you can allocate the rest to other funds if you’d like, but it’s not necessary.

For short term goals there are money market funds. You can of course leave money as uninvested which is the same, as T212 invests the money in money market funds.

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What about the split between Cyclical, Sensitive and Defensive?
Suuming a Conservative, Moderate and Aggressive portfolios.
For example, the “iShares Edge MSCI World Quality Factor UCITS ETF USD (Acc)” on its own has a 31.15% Cyclical, 47.85% Sensitive and 21% Defensive.
How would you balance the overall relationship among the three sectors?

This follows the MSCI World Sector Neutral Quality index:

The index aims to capture the performance of securities that exhibit stronger quality characteristics relative to their peers within the same
GICS® sector by identifying stocks with high quality scores based on three main fundamental variables: high Return-on-Equity (ROE), low
leverage and low earnings variability.

I believe quality companies are already more defensive than a market-cap weighted fund. I don’t know about cyclical and sensitive though. It’s a good ETF but less diversified than say Vanguard All-World and “only” contains developed markets.

For me, this gets at a key point. By adding lots of different ETFs, it becomes increasingly difficult to track your underlying expsoure to different sectors, countries, investing styles and so on.

It’s why I favour a simple portfolio with one global tracker though I do have a bunch of different trusts to tilt my portolio in the direction I want.

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Well, I am for simplicity too, and I believe that sometimes we could end up with two or more ETFs that, in reality, could be covered by one. However, that is a good way to make investment managers look smarter. I am trying to find the “perfect” balance in terms of exposure, and I am edging towards a higher-risk portfolio (pretty much all equities). I am not a fan of bonds, and I would rather rebalance a portfolio based on performance to achieve higher long-term returns. I am also looking at a 100% accumulating portfolio.

Would you go for the Vanguard FTSE All-World High Dividend or the FTSE All-World UCITS? There is also the All-Cap…

Putting some salt in the cooking pane:

Do you compared the “Globals”? E.g. FTSE All-World vs. MSCI ACWI vs. MSCI World?

(Not mentioning the MSCI EM and MSCI FM.)

Which of the mentioned indexes has the better performance?

Hint: We don’t need to invest in every country/region/capitalization. Sometimes less is more…

Just use justETF site for a quick compare. :wink:

The main difference between FTSE and MSCI is that the two differ in including countries as developed and emerging (i.e., South Korea and Poland). On the other hand, the MSCI ACWI and MSCI World differ in the former being focused on both developed and emerging countries, whereas the latter includes developed countries only. At the end of the day, it boils down to the investor’s preference, but so far, they all have returned similar performance.