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The New Global ETF Investor - back to Contents >
Chapter 6:
Moving Forward
Summary of Investment Edge Principles
These are the seven investment edge principles that are incorporated in our model portfolios and that we believe will tilt the odds of your long-term investment success.
- Investing your life’s savings is serious business but also a game. You must accept that there is no silver bullet and be content with putting the odds of success in your favor.
- Build your portfolio with a global perspective searching for value throughout the world. Target a reasonable blended international allocation in your core portfolio and consider for your growth portfolios a “barbell strategy” with roughly a 50% allocation to international markets. Tilt towards Asia in your growth portfolio.
- Use exchange-trade funds (ETFs) as your core investment tools in building your global portfolios.
- Separate your core portfolio from your capital growth portfolios.
- Use primarily a value approach in your core portfolio and favor value in your capital growth portfolios.
- Be careful with just investing in broad based index funds or ETFs. Look under the hood to see where your money is going and be wary of too much concentration of risk.
- Stay as fully invested as possible but periodically adjust holdings in your portfolios to reflect your situation and economic trends.
- Follow Chartwell’s eight step program to better manage risk in your portfolio and to help you build a well balanced, diversified and safer global portfolio.
Chartwell Model Portfolios
The following is a brief description of the model portfolios available to members of the ChartwellETFadvisor.com
The goal in building these portfolios is to incorporate the investment edge principles of this book. There are risks of loss in all of these portfolios. The intent is for investors to first allocate a portion of their investments modeling the Core Conservative Model Portfolio and to choose, depending on their individual situation and advice from their advisors, which and to what degree the other three growth portfolios are appropriate given their higher risk.
Investing in foreign securities may involve certain additional risks, including exchange rate fluctuations, less liquidity and less regulation. Single country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific industry, sector, or geographic location.
Conservative Core Model ETF Portfolio
This model portfolio has as its primary goal, capital preservation and secondary, capital appreciation. There is no guarantee that this will be accomplished but it is a well diversified portfolio with substantial allocations of fixed income, inflation-protection investment vehicles, limited international exposure, investments expected to be negatively correlated to U.S. equity markets, precious metals and other commodities, some income/dividend oriented investments and perhaps some CD’s denominated in non-dollar leading currencies to protect against a weak dollar.
This portfolio has been up an average of 16.7% each year during 2003-2005.
Global Model ETF Portfolio
This capital growth model portfolio seeks attractive and undervalued markets throughout the world. Currently, it tilts toward Asia where we expect continued strong economic growth. It includes some global sector iShares, overweights smaller companies in the U.S. as well as global multinational companies and underweights the US and Europe. Instead of using the broad based indices, it attempts to select the most promising countries but caps exposure to any one country at 10% of the model portfolio.
This portfolio has been up an average of 27.2% each year over the past three years.
International Model ETF Portfolio
The International Opportunity Model Portfolio will, to a great degree follow the strategy of the Global Opportunity Model Portfolio with the exception of not including direct U.S. exposure. There will be some exposure to U.S. markets through global sector and multinational funds. There will be a marginal over weighting of the model portfolio to Asia for reasons that will be explained in some detail in the description of the Greater Asia Growth Model Portfolio.
The International portfolio has had an average annual return of 29.8% during the past three years.
Asian Model ETF Portfolio
Based on the above analysis, we see great potential with commensurate risk for investors placing a bet on the Asia-Pacific region. The scenario we believe that is most likely is that China will continue to move ahead economically but that it will be a rocky road with plenty of dislocations and disappointments along the way. India will be the best market long term and overall the growth rate of the region will be the highest in the world over the next decade. We have discussed China and its exciting prospects and daunting challenges but investing in the greater Asia economic story is the core theme of the model portfolio.
The Asian Opportunity portfolio has been up an average of 26.2% each year over the last three years.
New Venture Model ETF Portfolio
For 2006 we have added a new and aggressive model portfolio called the New Venture Portfolio. It is made up of allocations to Powershares ETFs in future–oriented sectors such as biotech, water, clean energy, nanotech, aerospace, media and energy. It has a slant towards small cap opportunities and comes as close as possible to a ETF venture capital portfolio. Here is a quick overview of two of them
Powershares is rolled out another innovative product last month – the Water Resources ETF – that tracks the Palisades Water Index made up of companies in the water business such as treatment, potable water, technology and services. It is made up of 35 companies - 65% of the companies are small cap. It has an expense ration of 0.60%. The Palisades Water Index was up an average of 18.55% over the last five years versus -3% for the S&P 500 Index.
Powershares also has two new ETFs that we included in our model portfolios last month. The first is the Powershares Lux Nanotech ETF (PXN) launched last month. Nanotechnology is the science of using individual atoms and molecules to create computer chips and other devices thousands of times smaller than current technologies permit. It represents new technologies that juggle individual atoms. Nanotechnology transcends industry boundaries and research groups estimate that $3.8 billion was spent on research worldwide last year alone. The key goal is product innovation. The ETF has 26 securities with the largest representing 6% of the total. 65% of the companies are small cap and it has an annual expense ration of 0.60%.
The second Powershares new ETF was introduced earlier this year. It is the Powershares Clean Energy (PBW) and includes companies that focus on greener and generally renewable sources of energy and the technologies that support it. There are 36 companies in the index, 80% are small cap and no one company accounts for more than 3.2% of the total holdings.
The New Venture Fund was up 14% during the first three months of 2006.
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